10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended December 31, 2015
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 0-28104

JAKKS PACIFIC, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4527222
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2951 28th St.
Santa Monica, California	90405
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (424) 268-9444

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered
Common Stock, $.001 par value per share	Nasdaq Global Select

Securities registered pursuant to Section 12(g) of the Exchange Act:

Title of Class

Common Stock, $.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 of the Act.

Yes  o    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer,  a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,”  “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

o     Large Accelerated Filer	x     Accelerated Filer	o     Non-Accelerated Filer	o     Smaller Reporting Company
		(Do not check if a Smaller Reporting Company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  x

The aggregate market value of the voting and non-voting common equity (the only such common equity being Common Stock, $.001 par value per share) held by non-affiliates of the registrant (computed by reference to the closing sale price of the Common Stock on June 30, 2015 of $9.89) is $195,081,288.

The number of shares outstanding of the registrant’s Common Stock, $.001 par value (being the only class of its common stock), is 20,340,388 as of March 14, 2016.

Documents Incorporated by Reference

None.

JAKKS PACIFIC, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

For the Fiscal Year ended December 31, 2015

Items in Form 10-K

		Page
	PART I
Item 1.	Business	2
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	None
Item 2.	Properties	16
Item 3.	Legal Proceedings	17
Item 4.	Mine Safety Disclosures	18
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 8.	Consolidated Financial Statements and Supplementary Data	37
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	None
Item 9A.	Controls and Procedures	73
Item 9B.	Other Information	None
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	75
Item 11.	Executive Compensation	78
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	93
Item 13.	Certain Relationships and Related Transactions, and Director Independence	95
Item 14.	Principal Accountant Fees and Services	95
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	97
Signatures		99
Certifications

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. For example, statements included in this report regarding our financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about future product demand, supply, manufacturing, costs, marketing and pricing factors are all forward-looking statements. When we use words like “intend,” “anticipate,” “believe,” “estimate,” “plan” or “expect,” we are making forward-looking statements. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, based upon information available to us on the date hereof, but we cannot assure you that these assumptions and expectations will prove to have been correct or that we will take any action that we may presently be planning. We have disclosed certain important factors that could cause our actual results to differ materially from our current expectations elsewhere in this report. You should understand that forward-looking statements made in this report are necessarily qualified by these factors. We are not undertaking to publicly update or revise any forward-looking statement if we obtain new information or upon the occurrence of future events or otherwise.

PART I

Item 1.  Business

In this report, “JAKKS,” the “Company,” “we,” “us” and “our” refer to JAKKS Pacific, Inc., its subsidiaries and our majority owned joint venture.

Company Overview

We are a leading multi-line, multi-brand toy company that designs, produces, markets and distributes toys and related products, pet toys, consumables and related products, electronics and related products, kids indoor and outdoor furniture, and other consumer products. We focus our business on acquiring or licensing well-recognized trademarks and brand names, most with long product histories (“evergreen brands”). We seek to acquire these evergreen brands because we believe they are less subject to market fads or trends. We also develop proprietary products marketed under our own trademarks and brand names, and have historically acquired complementary businesses to further grow our portfolio. For accounting purposes, our products can be divided into two segments:  (i) traditional toys and electronics and (ii) role play, novelty and seasonal toys. Segment information with respect to revenues, assets and profits or losses attributable to each segment is contained in Note 3 to the audited consolidated financial statements contained below in Item 8. Our products include:

Traditional Toys and Electronics

● Action figures and accessories, including licensed characters, principally based on Batman, Star Wars, and Nintendo ® franchises;

● Toy vehicles, including Max Tow, Road Champs®, Fly Wheels® and MXS®  toy vehicles and accessories;

● Electronics products, including Spy Net® spy products,  Plug It In & Play TV Games™ video games based on popular brands;

● Dolls and accessories, including small dolls, large dolls, fashion dolls and baby dolls based on licenses, including Disney Frozen ,  Disney Princess®, Disney Fairies®, infant and pre-school toys based on PBS’s Daniel Tiger’s Neighborhood;

● Private label products as “exclusives” for a myriad of retail customers in many product categories;

● Foot-to-floor ride-on toys based on Fisher Price®, Kawasaki®, and DC Comics®, inflatable environments, tents and wagons; and

● Pet products, including toys, consumables, and accessories, branded JAKKS Pets® and American Classics™ , among others.

Role Play, Novelty and Seasonal Toys

● Role play, dress-up, pretend play and novelty products for boys and girls based on well-known brands and entertainment properties such as  Disney Frozen, Black & Decker ®, McDonald’s ®, Dirt Devil ®, Disney Princess ®, Disney Fairies® and Dora the Explorer ®, as well as those based on our own proprietary brands;

● Indoor and outdoor kids’ furniture, activity trays and tables and room décor; kiddie pools, seasonal and outdoor products, including those based on Crayola®, Disney® characters and more, and Funnoodle ® pool floats;

● Halloween and everyday costumes for all ages based on licensed and proprietary non-licensed brands, including Spiderman®, Toy Story®, Sesame Street®, Power Rangers®¸Hasbro® brands and Disney’s Frozen, Disney Princess®, and related Halloween accessories; and

● Junior sports and outdoor activity toys including Skyball® hyper-charged balls and sport sets and Wave Hoops® toy hoops marketed under our Maui Toys brand.

2

We continually review the marketplace to identify and evaluate popular and evergreen brands and product categories that we believe have the potential for growth. We endeavor to generate growth within these lines by:

● creating innovative products under our established licenses and brand names;

● adding new items to the branded product lines that we expect will enjoy greater popularity;

● infusing innovation and technology when appropriate to make them more appealing to today’s kids; and

● focusing our marketing efforts to enhance consumer recognition and retailer interest.

Our Business Strategy

In addition to developing our own proprietary brands and marks, licensing popular trademarks enables us to use these high-profile marks at a lower cost than we would incur if we purchased these marks or developed comparable marks on our own. By licensing trademarks, we have access to a far greater range of marks than would be available for purchase. We also license technology developed by unaffiliated inventors and product developers to enhance the design and functionality of our products.

We sell our products through our in-house sales staff and independent sales representatives to toy and mass-market retail chain stores, department stores, office supply stores, drug and grocery store chains, club stores, toy specialty stores and wholesalers. Our three largest customers are Wal-Mart, Target, and Toys ‘R’ Us, which accounted for approximately 21.9%, 13.0% and 9.5%, respectively, of our net sales in 2015. No other customer accounted for more than 10.0% of our net sales in 2015.

Our Growth Strategy

 In 2014 and 2015, we generated net sales of $810.1 million and $745.7 million, respectively, and net income of $21.5 million in 2014 and $23.2 million in 2015. Approximately 7.8% and 8.6% of our net sales in 2014 and 2015, respectively, were attributable to our acquisitions since 2011. Key elements of our growth strategy include:

●       Expand Core Products.    We manage our existing and new brands through strategic product development initiatives, including introducing new products, modifying existing products and extending existing product lines to maximize their longevity. Our marketing teams and product designers strive to develop new products or product lines to offer added technological, aesthetic and functional improvements to our extensive portfolio.

●       Enter New Product Categories.    We use our extensive experience in the toy and other consumer product industries to evaluate products and licenses in new product categories and to develop additional product lines. We began marketing licensed classic video games for simple plug-in use with television sets and expanded into several related categories by infusing additional technologies such as motion gaming and through the licensing of this category from our current licensors, such as Disney® and MTV Networks which owns  Nickelodeon® .

●      Pursue Strategic Acquisitions.    We supplement our internal growth with selected strategic acquisitions. In July 2012 we acquired the business of Maui, Inc., an Ohio corporation, and A.S. Design Limited, a related Hong Kong corporation (collectively, “Maui”). Maui is a leading manufacturer and distributor of spring and summer activity toys and impulse toys. We will continue focusing our acquisition strategy on businesses or brands that we believe have compatible product lines and/or offer valuable trademarks or brands.

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●       Acquire Additional Character and Product Licenses.    We have acquired the rights to use many familiar brand and character names and logos from third parties that we use with our primary trademarks and brands. Currently, among others, we have license agreements with Nickelodeon ®, Disney ®, and Warner Bros.®, as well as with the licensors of the many popular licensed children’s characters previously mentioned, among others. We intend to continue to pursue new licenses from these entertainment and media companies and other licensors. We also intend to continue to purchase additional inventions and product concepts through our existing network of inventors and product developers.

●       Expand International Sales.    We believe that foreign markets, especially Europe, Australia, Canada, Latin America and Asia, offer us significant growth opportunities. In 2015, our sales generated outside the United States were approximately $203.6 million, or 27.3% of total net sales. We intend to continue to expand our international sales and in 2015 opened sales offices and further expanded distribution agreements in Latin America and Europe to capitalize on our experience and our relationships with foreign distributors and retailers. We expect these initiatives to contribute to our international growth in 2016.

●       Capitalize On Our Operating Efficiencies.    We believe that our current infrastructure and operating model can accommodate growth without a proportionate increase in our operating and administrative expenses, thereby increasing our operating margins.

The execution of our growth strategy, however, is subject to several risks and uncertainties and we cannot assure you that we will continue to experience growth in, or maintain our present level of net sales (see “Risk Factors,” beginning on page 11). For example, our growth strategy will place additional demands upon our management, operational capacity and financial resources and systems. The increased demand upon management may necessitate our recruitment and retention of additional qualified management personnel. We cannot assure you that we will be able to recruit and retain qualified personnel or expand and manage our operations effectively and profitably. To effectively manage future growth, we must continue to expand our operational, financial and management information systems and to train, motivate and manage our work force. While we believe that our operational, financial and management information systems will be adequate to support our future growth, no assurance can be given they will be adequate without significant investment in our infrastructure. Failure to expand our operational, financial and management information systems or to train, motivate or manage employees could have a material adverse effect on our business, financial condition and results of operations.

Moreover, implementation of our growth strategy is subject to risks beyond our control, including competition, market acceptance of new products, changes in economic conditions, our ability to obtain or renew licenses on commercially reasonable terms and our ability to finance increased levels of accounts receivable and inventory necessary to support our sales growth, if any.

Furthermore, we cannot assure you that we can identify attractive acquisition candidates or negotiate acceptable acquisition terms, and our failure to do so may adversely affect our results of operations and our ability to sustain growth.

Finally, our acquisition strategy involves a number of risks, each of which could adversely affect our operating results, including difficulties in integrating acquired businesses or product lines, assimilating new facilities and personnel and harmonizing diverse business strategies and methods of operation; diversion of management attention from operation of our existing business; loss of key personnel from acquired companies; and failure of an acquired business to achieve targeted financial results.

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Industry Overview

According to Toy Industry Association, Inc., the leading toy industry trade group, the United States is the world’s largest toy market, followed by Japan and Western Europe. Total retail sales of toys, excluding video games, in the United States, were approximately $19.5 billion in 2015. We believe the two largest United States toy companies, Mattel and Hasbro, collectively hold a dominant share of the domestic non-video toy market. In addition, hundreds of smaller companies compete in the design and development of new toys, the procurement of character and product licenses, and the improvement and expansion of previously introduced products and product lines.

Over the past few years, the toy industry has experienced substantial consolidation among both toy companies and toy retailers. We believe that the ongoing consolidation of toy companies provides us with increased growth opportunities due to retailers’ desire to not be entirely dependent upon a few dominant toy companies. Retailer concentration also enables us to ship products, manage account relationships and track point of sale information more effectively and efficiently.

Products

We focus our business on acquiring or licensing well-recognized trademarks or brand names, and we seek to acquire evergreen brands which are less subject to market fads or trends. Generally, our license agreements for products and concepts call for royalties ranging from 1% to 20% of net sales, and some may require minimum guarantees and advances. Our principal products include:

Traditional Toys and Electronics

Electronics Products

Our electronic products category includes our Plug It In & Play TV Games®, Hero Portal, SpyNet Spy products and Laser Challenge® product lines. Our current Plug It In & Play TV Games® titles, geared to the leisure gamer segments, feature licensed brands such as Teenage Mutant Ninja Turtles.

Wheels Products

Motorized and plastic toy vehicles and accessories.

Our extreme sports offerings include our MXS line of motorcycles with generic and well-known riders and other vehicles include off-road vehicles and skateboards, which are sold individually and with playsets and accessories. In 2014, we launched our proprietary line of motorized vehicles under the brand Max Tow™, and in 2015, we expanded the product line to include higher performance versions as well as mini size vehicles and play sets under the Max Mini line.

Action Figures and Accessories

We currently develop, manufacture and distribute other action figures and action figure accessories including those based on Star Wars®, and Batman®, capitalizing on the expertise we built in the action figure category.

Our line of big figures featuring our 31” figures including Superman®, Power Rangers® and Star Wars® to include an assortment of 20” figures as well as 48” Teenage Mutant Ninja Turtles figures and Star Wars figures.

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Dolls

Dolls and accessories include small dolls, large dolls, fashion dolls and baby dolls based on licenses, including Disney’s Frozen, Disney Princess®, Disney Fairies®, including an extensive line of baby doll accessories that emulate real baby products that mothers today use; plush, infant and pre-school toys, and private label fashion dolls for other retailers and sold to Disney Stores and Disney Parks and Resorts.

In 2013, we launched miWorld®, a line of mall-based playhouse elements featuring Claire’s, Skechers and O.P.I. among others which incorporates DreamPlay technology adding a virtual experience to a physical toy and expanded the product line to include additional retail brands and updates of the app.

Pet Products

Our Pet Products category includes pet toys, treats, beds, clothes and related pet products. These products are marketed under JAKKS Pets® and our own proprietary brand of assorted pet products under the brand American Classics ® among others as well as licenses includingnumerous entertainment and consumer product properties.

Role Play, Novelty & Seasonal

Role Play and Dress-up Products

Our line of role play and dress-up products for boys and girls features entertainment and consumer products properties such as  Disney’s Frozen, Disney Princess®, Disney Fairies®, Dora the Explorer® , and Black & Decker®. These products generated a significant amount of sales in 2014 and 2015.

Seasonal/ Outdoor Products

We have a wide range of seasonal toys and outdoor and leisure products including our recently acquired Maui line of proprietary products including Sky Ball and Wave Hoop among other outdoor toys. Our Funnoodle® pool toys include the basic Funnoodle pool floats and a variety of other pool toys.

Indoor and Outdoor Kids’ Furniture

We produce an extensive array of licensed indoor and outdoor kids' furniture and activity tables, and room decor. Our licensed portfolio includes character licenses, including Crayola®, Disney Princess®, Toy Story ®, Mickey Mouse®, Dora the Explorer®, and others. Products include children’s puzzle furniture, tables and chairs to activity sets, trays, stools and a line of licensed molded kiddie pools, among others.

Halloween and Everyday Costume Play

We produce an expansive and innovative line of Halloween costumes and accessories which includes a wide range of non-licensed Halloween costumes such as horror, pirates, historical figures and aliens to animals, vampires, angels and more, as well as popular licensed characters from top intellectual property owners including Disney®, Hasbro®, Sesame Workshop®, Mattel®, and many others. In 2016, we will be adding new licenses including Lego brands.

DreamPlay Technology

In September 2012, we formed a joint venture with NantWorks LLC called DreamPlay Toys LLC to exploit their patented recognition technologies in conjunction with toy and consumer products. In 2013, we launched two lines of toy products which utilize the technologies to enhance the play pattern of the toys as well as enhance the in-store experience of the consumer. The first product line was based on Disney’s Little Mermaid followed by our propriety concept, miWorld®. Both product lines were accompanied by a software application which brings the toy products to life adding a rich virtual experience to a physical experience. In 2015, we released updates to these apps as well as launched several other toys with application based product lines.

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Sales, Marketing and Distribution

We sell all of our products through our own in-house sales staff and independent sales representatives to toy and mass-market retail chain stores, department stores, office supply stores, drug and grocery store chains, club stores, toy specialty stores and wholesalers. Our three largest customers are Wal-Mart, Target, and Toys ‘R’ Us, which accounted for approximately 47.4% of our net sales in 2014 and 44.4% of our net sales in 2015. With the JAKKS Pets® product line, we distribute pet products to key pet supply retailers Petco and PetSmart in addition to many other pet retailers and our existing customers. We generally sell products to our customers pursuant to letters of credit or, in some cases, on open account with payment terms typically varying from 30 to 90 days. From time to time, we allow our customers credits against future purchases from us in order to facilitate their retail markdown and sales of slow-moving inventory. We also sell our products through e-commerce sites, including Toysrus.com and Amazon.com.

We contract the manufacture of most of our products to unaffiliated manufacturers located in The People’s Republic of China (“China”). We sell the finished products on a letter of credit basis or on open account to our customers, many of whom take title to the goods in Hong Kong or China. These methods allow us to reduce certain operating costs and working capital requirements. A portion of our sales originate in the United States, so we hold certain inventory in our warehouses and fulfillment facilities. To date, a majority of all of our sales has been to domestic customers. We intend to continue expanding distribution of our products into foreign territories and, accordingly, we have:

● entered into a joint venture in China,

● engaged representatives to oversee sales in certain foreign territories,

● engaged distributors in certain foreign territories,

● established direct relationships with retailers in certain foreign territories,

● opened sales offices in Europe,

● opened sales offices and a distribution center in Canada, and

● expanded in-house resources dedicated to product development and marketing of our lines.

7

Outside of the United States, we currently sell our products primarily in Europe, Australia, Canada, Latin America and Asia. Sales of our products abroad accounted for approximately $156.6 million, or 19.3% of our net sales, in 2014 and approximately $203.6 million, or 27.3% of our net sales, in 2015. We believe that foreign markets present an attractive opportunity, and we plan to intensify our marketing efforts and further expand our distribution channels abroad.

We establish reserves for sales allowances, including promotional allowances and allowances for anticipated defective product returns, at the time of shipment. The reserves are determined as a percentage of net sales based upon either historical experience or upon estimates or programs agreed upon by our customers and us.

We obtain, directly, or through our sales representatives, orders for our products from our customers and arrange for the manufacture of these products as discussed below. Cancellations generally are made in writing, and we take appropriate steps to notify our manufacturers of these cancellations. We may incur costs or other losses as a result of cancellations.

We maintain a full-time sales and marketing staff, many of whom make on-site visits to customers for the purpose of showing product and soliciting orders for products. We also retain a number of independent sales representatives to sell and promote our products, both domestically and internationally. Together with retailers, we occasionally test the consumer acceptance of new products in selected markets before committing resources to large-scale production.

We publicize and advertise our products in trade and consumer magazines and other publications, market our products at international, national and regional toy and other specialty trade shows, conventions and exhibitions and carry on cooperative advertising programs with toy and mass market retailers and other customers which include the use of print and television ads and in-store displays. We also produce and broadcast television commercials for several of our product lines, if we expect that the resulting increase in our net sales will justify the relatively high cost of television advertising.

Product Development

Each of our product lines has an in-house manager responsible for product development. The in-house manager identifies and evaluates inventor products and concepts and other opportunities to enhance or expand existing product lines or to enter new product categories. In addition, we create proprietary products to fully exploit our concept and character licenses. Although we have the capability to create and develop products from inception to production, we also use third-parties to provide a portion of the sculpting, sample making, illustration and package design required for our products in order to accommodate our increasing product innovations and introductions. Typically, the development process takes from three to nine months from concept to production and shipment to our customers.

We employ a staff of designers for all of our product lines. We occasionally acquire our other product concepts from unaffiliated third parties. If we accept and develop a third party’s concept for new toys, we generally pay a royalty on the sale of the toys developed from this concept, and may, on an individual basis, as well as some of our DreamPlay apps, guarantee a minimum royalty. In addition, we engage third-party developers to program our line of Plug it in & Play TV Games. Royalties payable to inventors and developers generally range from 1% to 5% of the wholesale sales price for each unit of a product sold by us. We believe that utilizing experienced third-party inventors gives us access to a wide range of development talent. We currently work with numerous toy inventors and designers for the development of new products and the enhancement of existing products.

Safety testing of our products is done at the manufacturers’ facilities by quality control personnel employed by us or by independent third-party contractors engaged by us. Safety testing is designed to meet or exceed regulations imposed by federal and state, as well as applicable international governmental authorities, our retail partners, licensors and the Toy Industry Association. We also closely monitor quality assurance procedures for our products for safety purposes. In addition, independent laboratories engaged by some of our larger customers and licensors test certain of our products.

8

Manufacturing and Supplies

Most of our products are currently produced by overseas third-party manufacturers, which we choose on the basis of quality, reliability and price. Consistent with industry practice, the use of third-party manufacturers enables us to avoid incurring fixed manufacturing costs, while maximizing flexibility, capacity and production technology. Substantially all of the manufacturing services performed overseas for us are paid for on open account with the manufacturers. To date, we have not experienced any material delays in the delivery of our products; however, delivery schedules are subject to various factors beyond our control, and any delays in the future could adversely affect our sales. Currently, we have ongoing relationships with over eighty different manufacturers. We believe that alternative sources of supply are available to us although we cannot be assured that we can obtain adequate supplies of manufactured products.

Although we do not conduct the day-to-day manufacturing of our products, we are extensively involved in the design of the product prototype and production tools, dyes and molds for our products and we seek to ensure quality control by actively reviewing the production process and testing the products produced by our manufacturers. We employ quality control inspectors who rotate among our manufacturers’ factories to monitor the production of substantially all of our products.

The principal raw materials used in the production and sale of our toy products are plastics, zinc alloy, plush, printed fabrics, paper products and electronic components, all of which are currently available at reasonable prices from a variety of sources. Although we do not manufacture our products, we own the majority of the tools, dyes and molds used in the manufacturing process, and these are transferable among manufacturers if we choose to employ alternative manufacturers. Tools, dyes and molds represent a substantial portion of our property and equipment with a net book value of $8.8 million in 2014 and $10.2 million in 2015; substantially all of these assets are located in China.

Trademarks and Copyrights

Most of our products are produced and sold under trademarks owned by or licensed to us. We typically register our properties, and seek protection under the trademark, copyright and patent laws of the United States and other countries where our products are produced or sold. These intellectual property rights can be significant assets. Accordingly, while we believe we are sufficiently protected, the loss of some of these rights could have an adverse effect on our business, financial condition and results of operations.

Competition

Competition in the toy industry is intense. Globally, certain of our competitors have greater financial resources, larger sales and marketing and product development departments, stronger name recognition, longer operating histories and benefit from greater economies of scale. These factors, among others, may enable our competitors to market their products at lower prices or on terms more advantageous to customers than those we could offer for our competitive products. Competition often extends to the procurement of entertainment and product licenses, as well as the marketing and distribution of products and the obtaining of adequate shelf space. Competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. In each of our product lines we compete against one or both of the toy industry’s two dominant companies, Mattel and Hasbro. In addition, we compete in our Halloween costume lines with Rubies. We also compete with numerous smaller domestic and foreign toy manufacturers, importers and marketers in each of our product categories.

Seasonality and Backlog

In 2015, approximately 67.1% of our net sales were made in the third and fourth quarters. Generally, the first quarter is the period of lowest shipments and sales in our business and in the toy industry and therefore it is also the least profitable quarter due to various fixed costs. Seasonality factors may cause our operating results to fluctuate significantly from quarter to quarter. However, our seasonal products are primarily sold in the spring and summer seasons. Our results of operations may also fluctuate as a result of factors such as the timing of new products (and related expenses) introduced by us or our competitors, the advertising activities of our competitors, delivery schedules set by our customers and the emergence of new market entrants. We believe, however, that the low retail price of most of our products may be less subject to seasonal fluctuations than higher priced toy products.

We ship products in accordance with delivery schedules specified by our customers, who generally request delivery of products within three to six months of the date of their orders for orders shipped FOB China or Hong Kong and within three days for orders shipped domestically. Because customer orders may be canceled at any time without penalty, our backlog may not accurately indicate sales for any future period.

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Government and Industry Regulation

Our products are subject to the provisions of the Consumer Product Safety Act (“CPSA”), the Federal Hazardous Substances Act (“FHSA”), the Flammable Fabrics Act (“FFA”) and the regulations promulgated there under. The CPSA and the FHSA enable the Consumer Products Safety Commission (“CPSC”) to exclude from the market consumer products that fail to comply with applicable product safety regulations or otherwise create a substantial risk of injury, and articles that contain excessive amounts of a banned hazardous substance. The FFA enables the CPSC to regulate and enforce flammability standards for fabrics used in consumer products. The CPSC may also require the repurchase by the manufacturer of articles. Similar laws exist in some states and cities and in various international markets. We maintain a quality control program designed to ensure compliance with all applicable laws.

Employees

As of February 29, 2016, we employed 775 persons, all of whom are full-time employees, including three executive officers. We employed 364 people in the United States, 11 people in Canada, 262 people in Hong Kong, 118 people in China, 16 people in the United Kingdom, 1 person in France, and 3 people in Germany. We believe that we have good relationships with our employees. None of our employees are represented by a union.

Environmental Issues

We are subject to legal and financial obligations under environmental, health and safety laws in the United States and in other jurisdictions where we operate. We are not currently aware of any material environmental liabilities associated with any of our operations.

Available Information

We make available free of charge on or through our Internet website, www.jakks.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The contents of our website are not incorporated in or deemed to be a part of any such report.

Our Corporate Information

We were formed as a Delaware corporation in 1995. Our principal executive offices are located at 2951 28th Street, Santa Monica, California 90405. Our telephone number is (424) 268-9444 and our Internet Website address is www.jakks.com. The contents of our website are not incorporated in or deemed to be a part of this Annual Report on Form 10-K.

10

Item 1A.  Risk Factors

From time to time, including in this Annual Report on Form 10-K, we publish forward-looking statements, as disclosed in our Disclosure Regarding Forward-Looking Statements, beginning immediately following the Table of Contents of this Annual Report. We note that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed or anticipated in our forward-looking statements. The factors listed below are risks and uncertainties that may arise and that may be detailed from time to time in our public announcements and our filings with the Securities and Exchange Commission, such as on Forms 8-K, 10-Q and 10-K. We undertake no obligation to make any revisions to the forward-looking statements contained in this Annual Report on Form 10-K to reflect events or circumstances occurring after the date of the filing of this report.

Our inability to redesign, restyle and extend our existing core products and product lines as consumer preferences evolve, and to develop, introduce and gain customer acceptance of new products and product lines, may materially and adversely impact our business, financial condition and results of operations.

Our business and operating results depend largely upon the appeal of our products. Our continued success in the toy industry will depend upon our ability to redesign, restyle and extend our existing core products and product lines as consumer preferences evolve, and to develop, introduce and gain customer acceptance of new products and product lines. Several trends in recent years have presented challenges for the toy industry, including:

● the phenomenon of children outgrowing toys at younger ages, particularly in favor of interactive and high technology products;

● increasing use of technology;

● shorter life cycles for individual products; and

● higher consumer expectations for product quality, functionality and value.

We cannot assure you that:

● our current products will continue to be popular with consumers;

● the products that we introduce will achieve any significant degree of market acceptance;

● the life cycles of our products will be sufficient to permit us to recover licensing, design, manufacturing, marketing and other costs associated with those products.

● our inclusion of new technology will result in higher sales or increased profits.

Our failure to achieve any or all of the foregoing benchmarks may adversely affect our business, financial condition and results of operations.

The failure of our character-related and theme-related products to become and/or remain popular with children may materially and adversely impact our business, financial condition and results of operations.

The success of many of our character-related and theme-related products depends upon the popularity of characters in movies, television programs, live sporting exhibitions, and other media and events. We cannot assure you that:

● media associated with our character-related and theme-related product lines will be released at the times we expect or will be successful;

● the success of media associated with our existing character-related and theme-related product lines will result in substantial promotional value to our products;

● we will be successful in renewing licenses upon expiration on terms that are favorable to us; or

● we will be successful in obtaining licenses to produce new character-related and theme-related products in the future.

Our failure to achieve any or all of the foregoing benchmarks may cause the infrastructure of our operations to fail, thereby adversely affecting our business, financial condition and results of operations.

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There are risks associated with our license agreements.

● Our current licenses require us to pay minimum royalties

Sales of products under trademarks or trade or brand names licensed from others account for substantially all of our net sales. Product licenses allow us to capitalize on characters, designs, concepts and inventions owned by others or developed by toy inventors and designers. Our license agreements generally require us to make specified minimum royalty payments, even if we fail to sell a sufficient number of units to cover these amounts. In addition, under certain of our license agreements, if we fail to achieve certain prescribed sales targets, we may be unable to retain or renew these licenses.

● Some of our licenses are restricted as to use

Under the majority of our license agreements, the licensors have the right to review and approve our use of their licensed products, designs or materials before we may make any sales. If a licensor refuses to permit our use of any licensed property in the way we propose, or if their review process is delayed, our development or sale of new products could be impeded.

● New licenses are difficult and expensive to obtain

Our continued success will substantially depend upon our ability to obtain additional licenses. Intense competition exists for desirable licenses in our industry. We cannot assure you that we will be able to secure or renew significant licenses on terms acceptable to us. In addition, as we add licenses, the need to fund additional royalty advances and guaranteed minimum royalty payments may strain our cash resources.

● A limited number of licensors account for a large portion of our net sales

We derive a significant portion of our net sales from a limited number of licensors. If one or more of these licensors were to terminate or fail to renew our license or not grant us new licenses, our business, financial condition and results of operations could be adversely affected.

The toy industry is highly competitive and our inability to compete effectively may materially and adversely impact our business, financial condition and results of operations.

The toy industry is highly competitive. Globally, certain of our competitors have financial and strategic advantages over us, including:

● greater financial resources;

● larger sales, marketing and product development departments;

● stronger name recognition;

● longer operating histories; and

● greater economies of scale.

In addition, the toy industry has no significant barriers to entry. Competition is based primarily upon the ability to design and develop new toys, procure licenses for popular characters and trademarks and successfully market products. Many of our competitors offer similar products or alternatives to our products. Our competitors have obtained and are likely to continue to obtain licenses that overlap our licenses with respect to products, geographic areas and markets. We cannot assure you that we will be able to obtain adequate shelf space in retail stores to support our existing products, expand our products and product lines or continue to compete effectively against current and future competitors.

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We may not be able to sustain or manage our product line growth, which may prevent us from increasing our net revenues.

Historically, we have experienced growth in our product lines through acquisitions of businesses, products and licenses. This growth in product lines has contributed significantly to our total revenues over the last few years. For example, revenues associated with companies we acquired since 2011 were approximately $63.4 million and $64.0 million, in 2014 and 2015, respectively, representing approximately 7.8% and 8.6%, respectively, of our total revenues for those periods. As a result, even though we had no acquisitions since 2012, comparing our future period-to-period operating results may not be meaningful and results of operations from prior periods may not be indicative of future results. We cannot assure you that we will continue to experience growth in, or maintain our present level of, net sales.

Our growth strategy calls for us to continuously develop and diversify our toy business by acquiring other companies, entering into additional license agreements, refining our product lines and expanding into international markets, which will place additional demands upon our management, operational capacity and financial resources and systems. The increased demand upon management may necessitate our recruitment and retention of qualified management personnel. We cannot assure you that we will be able to recruit and retain qualified personnel or expand and manage our operations effectively and profitably. To effectively manage future growth, we must continue to expand our operational, financial and management information systems and to train, motivate and manage our work force. There can be no assurance that our operational, financial and management information systems will be adequate to support our future operations. Failure to expand our operational, financial and management information systems or to train, motivate or manage employees could have a material adverse effect on our business, financial condition and results of operations.

In addition, implementation of our growth strategy is subject to risks beyond our control, including competition, market acceptance of new products, changes in economic conditions, our ability to obtain or renew licenses on commercially reasonable terms, our ability to identify acquisition candidates and conclude acquisitions on acceptable terms, and our ability to finance increased levels of accounts receivable and inventory necessary to support our sales growth, if any. Accordingly, we cannot assure you that our growth strategy will be successful.

If we are unable to acquire and integrate companies and new product lines successfully, we will be unable to implement a significant component of our growth strategy.

Our growth strategy depends, in part, upon our ability to acquire companies and new product lines. Future acquisitions, if any, may succeed only if we can effectively assess characteristics of potential target companies and product lines, such as:

● attractiveness of products;

● suitability of distribution channels;

● management ability;

● financial condition and results of operations; and

● the degree to which acquired operations can be integrated with our operations.

We cannot assure you that we can identify attractive acquisition candidates or negotiate acceptable acquisition terms, and our failure to do so may adversely affect our results of operations and our ability to sustain growth. Our acquisition strategy involves a number of risks, each of which could adversely affect our operating results, including:

● difficulties in integrating acquired businesses or product lines, assimilating new facilities and personnel and harmonizing diverse business strategies and methods of operation;

● diversion of management attention from operation of our existing business;

● loss of key personnel from acquired companies;

● failure of an acquired business to achieve targeted financial results; and

● Limited capital to finance acquisitions.

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A limited number of customers account for a large portion of our net sales, so that if one or more of our major customers were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us or return substantial amounts of our products, it could have a material adverse effect on our business, financial condition and results of operations.

Our three largest customers accounted for 44.4% of our net sales in 2015. Except for outstanding purchase orders for specific products, we do not have written contracts with or commitments from any of our customers and pursuant to the terms of certain of our vendor agreements, even some purchase orders may be cancelled without penalty up until delivery. A substantial reduction in or termination of orders from any of our largest customers could adversely affect our business, financial condition and results of operations. In addition, pressure by large customers seeking price reductions, financial incentives, and changes in other terms of sale or for us to bear the risks and the cost of carrying inventory could also adversely affect our business, financial condition and results of operations. If one or more of our major customers were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us or return substantial amounts of our products, it could have a material adverse effect on our business, financial condition and results of operations. In addition, the bankruptcy or other lack of success of one or more of our significant retailers could negatively impact our revenues and bad debt expense.

We depend upon our Chief Executive Officer and any loss or interruption of his services could adversely affect our business, financial condition and results of operations.

Our success has been largely dependent upon the experience and continued services of Stephen G. Berman, our President and Chief Executive Officer. We cannot assure you that we would be able to find an appropriate replacement for Mr. Berman should the need arise, and any loss or interruption of the services of Mr. Berman could adversely affect our business, financial condition and results of operations.

We depend upon third-party manufacturers, and if our relationship with any of them is harmed or if they independently encounter difficulties in their manufacturing processes, we could experience product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis, any of which could adversely affect our business, financial condition and results of operations.

We depend upon many third-party manufacturers who develop, provide and use the tools, dyes and molds that we generally own to manufacture our products. However, we have limited control over the manufacturing processes themselves. As a result, any difficulties encountered by the third-party manufacturers that result in product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis could adversely affect our business, financial condition and results of operations.

We do not have long-term contracts with our third-party manufacturers. Although we believe we could secure other third-party manufacturers to produce our products, our operations would be adversely affected if we lost our relationship with any of our current suppliers or if our current suppliers’ operations or sea or air transportation with our overseas manufacturers were disrupted or terminated even for a relatively short period of time. Our tools, dyes and molds are located at the facilities of our third-party manufacturers.

Although we do not purchase the raw materials used to manufacture our products, we are potentially subject to variations in the prices we pay our third-party manufacturers for products, depending upon what they pay for their raw materials.

We have substantial sales and manufacturing operations outside of the United States, subjecting us to risks common to international operations.

We sell products and operate facilities in numerous countries outside the United States. Sales to our international customers comprised approximately 27.3% of our net sales for the year ended December 31, 2015 and approximately 19.3% of our net sales for the year ended December 31, 2014. We expect our sales to international customers to account for a greater portion of our revenues in future fiscal periods. Additionally, we utilize third-party manufacturers, located principally in China, and are subject to the risks normally associated with international operations, including:

● currency conversion risks and currency fluctuations;

● limitations, including taxes, on the repatriation of earnings;

● political instability, civil unrest and economic instability;

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● greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;

● complications in complying with laws in varying jurisdictions and changes in governmental policies;

● greater difficulty and expenses associated with recovering from natural disasters, such as earthquakes, hurricanes and floods;

● transportation delays and interruption;

● work stoppages;

● the potential imposition of tariffs; and

● the pricing of intercompany transactions may be challenged by taxing authorities in both Hong Kong and the United States, with potential increases in income taxes.

Our reliance upon external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply, should such changes be necessary. However, if we were prevented from obtaining products or components for a material portion of our product line due to medical, political, labor or other factors beyond our control, our operations would be disrupted while alternative sources of products were secured. Also, the imposition of trade sanctions by the United States against a class of products imported by us from, or the loss of “normal trade relations” status by, China could significantly increase our cost of products imported from that nation. Because of the importance of international sales and international sourcing of manufacturing to our business, our financial condition and results of operations could be significantly and adversely affected if any of the risks described above were to occur.

Our business is subject to extensive government regulation and any violation by us of such regulations could result in product liability claims, loss of sales, diversion of resources, damage to our reputation, increased warranty costs or removal of our products from the market, and we cannot assure you that our product liability insurance for the foregoing will be sufficient.

Our business is subject to various laws, including the Federal Hazardous Substances Act, the Consumer Product Safety Act, the Flammable Fabrics Act and the rules and regulations promulgated under these acts. These statutes are administered by the CPSC, which has the authority to remove from the market products that are found to be defective and present a substantial hazard or risk of serious injury or death. The CPSC can require a manufacturer to recall, repair or replace these products under certain circumstances. We cannot assure you that defects in our products will not be alleged or found. Any such allegations or findings could result in:

● product liability claims;

● loss of sales;

● diversion of resources;

● damage to our reputation;

● increased warranty and insurance costs; and

● removal of our products from the market.

Any of these results may adversely affect our business, financial condition and results of operations. There can be no assurance that our product liability insurance will be sufficient to avoid or limit our loss in the event of an adverse outcome of any product liability claim.

We depend upon our proprietary rights and our inability to safeguard and maintain the same, or claims of third parties that we have violated their intellectual property rights, could have a material adverse effect on our business, financial condition and results of operations.

We rely upon trademark, copyright and trade secret protection, nondisclosure agreements and licensing arrangements to establish, protect and enforce our proprietary rights in our products. The laws of certain foreign countries may not protect intellectual property rights to the same extent or in the same manner as the laws of the United States. We cannot assure you that we or our licensors will be able to successfully safeguard and maintain our proprietary rights. Further, certain parties have commenced legal proceedings or made claims against us based upon our alleged patent infringement, misappropriation of trade secrets or other violations of their intellectual property rights. We cannot assure you that other parties will not assert intellectual property claims against us in the future. These claims could divert our attention from operating our business or result in unanticipated legal and other costs, which could adversely affect our business, financial condition and results of operations.

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Market conditions and other third-party conduct could negatively impact our margins and implementation of other business initiatives.

Economic conditions, such as decreased consumer confidence, may adversely impact our margins. In addition, general economic conditions were significantly and negatively affected by the September 11th terrorist attacks and could be similarly affected by any future attacks. Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could adversely affect our sales and profitability. Other conditions, such as the unavailability of electronics components, may impede our ability to manufacture, source and ship new and continuing products on a timely basis. Significant and sustained increases in the price of oil could adversely impact the cost of the raw materials used in the manufacture of our products, such as plastic.

We may not have the funds necessary to purchase our outstanding convertible senior notes upon a fundamental change or other purchase date, as required by the indenture governing the notes.

In June 2014, the Company sold an aggregate of $115.0 million principal amount of 4.875% Convertible Senior Notes due on June 1, 2020, of which $113.0 million are currently outstanding (the “2020 Notes”). Holders of the 2020 Notes may require us to repurchase for cash all or some of their notes upon the occurrence of a fundamental change (as defined in the 2020 Notes). Holders of the 2020 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2020 Notes will be settled in shares of the Company’s common stock. In July 2013, the Company sold an aggregate of $100.0 million principal amount of 4.25% Convertible Senior Notes due on August 1, 2018 (the “2018 Notes”). Holders of the 2018 Notes may require us to repurchase for cash all or some of their notes upon the occurrence of a fundamental change (as defined in the 2018 Notes). Holders of the 2018 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2018 Notes will be settled in shares of the Company’s common stock. Restrictions on borrowings under or loss of our credit facility could have a material adverse effect on our financial condition including an adverse impact on our ability to pay the 2018 and 2020 Notes when due.

Restrictions under or the loss of availability under our credit facility could adversely impact our financial condition and our ability to pay our convertible notes when due.

On March 27, 2014, we obtained a $75,000,000 revolving line of credit. Any amounts borrowed under the revolving credit line are our senior secured obligations. All outstanding borrowings under the revolving credit line are accelerated and become immediately due and payable (and the revolving credit line terminates) in the event of a default which includes, among other things, failure to comply with financial ratio covenants or breach of representations contained in the credit line documents, defaults under other loans or obligations, involvement in bankruptcy proceedings, an occurrence of a change of control or an event constituting a material adverse effect on us (as such terms are defined in the credit line documents). We are also subject to negative covenants which, during the life of the credit line, prohibit and/or limit us from, among other things, incurring certain types of other debt, acquiring other companies, making certain expenditures or investments, changing the character of our business, and certain changes to our executive officers.

We have a full valuation allowance on the entire balance of deferred taxes on our books since their future realization is uncertain.

Deferred tax assets are realized by prior and future taxable income of appropriate character. Current accounting standards require that a valuation allowance be recorded if it is not likely that sufficient taxable income of appropriate character will be generated to realize the deferred tax assets. We currently believe that based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have recorded a valuation allowance against our US federal and state deferred tax assets. Our net operating losses and tax credit carry-forwards can expire if unused, and their utilization could be substantially limited in the event of an "ownership change," as defined in Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.

An adverse decision in litigation in which we have been named as a defendant could have a material adverse effect on our financial condition and results of operations     

We are defendants in a class action described herein and under “Legal Proceedings” in our periodic reports filed pursuant to the Securities Exchange Act of 1934 (see “Legal Proceedings”). No assurances can be given that the results of these litigation matters will be favorable to us or that an adverse decision in such litigation would not have a material adverse impact on our financial condition and results of operations.

Item 2.  Properties

The following is a listing of the principal leased offices maintained by us as of February 29, 2016:

Property	Location	Approximate Square Feet	Lease Expiration Date
Domestic
Distribution Center	City of Industry, California	800,000	April 30, 2018
Distribution Center	Hickory, NC	139,438	August 31, 2016
Sales Office/Showroom	Bentonville, Arkansas	9,000	September 30, 2019
Disguise Office	Poway, California	24,200	March 31, 2021
Maui Toys Office/Warehouse	Youngstown, Ohio	73,000	Month-to-month
Sales Office	Hoffman Estates, II	2,102	December 8, 2018
Corporate Office/Showroom	Santa Monica, California	65,858	January 31, 2024
Showroom	Glendale, California	5,830	January 31, 2020
International
Distribution Center	Brampton, Ontario, Canada	105,700	December 31, 2019
Europe Office	Berkshire, UK	4,746	February 25, 2018
Hong Kong Headquarters	Kowloon, Hong Kong	41,130	June 30, 2019
Production Inspection and Testing Office	Shenzhen, China	5,417	May 14, 2017
Production Inspection and Testing Lab	Guangdong, China	23,200	December 31, 2016

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Item 3.  Legal Proceedings

On July 25, 2013, a purported class action lawsuit was filed in the United States District Court for the Central District of California captioned Melot v. JAKKS Pacific, Inc. et al., Case No. CV13-05388 (JAK) against Stephen G. Berman, Joel M. Bennett (collectively the “Individual Defendants”), and the Company (collectively, “Defendants”). On July 30, 2013, a second purported class action lawsuit was filed containing similar allegations against Defendants captioned Dylewicz v. JAKKS Pacific, Inc. et al., Case No. CV13-5487 (OON). The two cases (collectively, the “Class Action”) were consolidated on December 2, 2013 under Case No. CV13-05388 JAK (SSx) and lead plaintiff and lead counsel appointed. On January 17, 2014, Plaintiff filed a consolidated class action complaint (the “First Amended Complaint”) against Defendants which alleged that the Company violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder by making false and/or misleading statements concerning Company financial projections and performance as part of its public filings and earnings calls from July 17, 2012 through July 17, 2013. Specifically, the First Amended Complaint alleged that the Company’s forward looking statements, guidance and other public statements were false and misleading for allegedly failing to disclose (i) certain alleged internal forecasts, (ii) the Company's alleged quarterly practice of laying off and rehiring workers, (iii) the Company's alleged entry into license agreements with guaranteed minimums the Company allegedly knew it was unable to meet; and (iv) allegedly poor performance of the Monsuno and Winx lines of products after their launch. The First Amended Complaint also alleged violations of Section 20(a) of the Exchange Act by Messrs. Berman and Bennett. The First Amended Complaint sought compensatory and other damages in an undisclosed amount as well as attorneys’ fees and pre-judgment and post-judgment interest. The Company filed a motion to dismiss the First Amended Complaint on February 17, 2014, and the motion was granted, with leave to replead. A Second Amended Complaint (“SAC”) was filed on July 8, 2014 and it set forth similar allegations to those in the First Amended Complaint about discrepancies between internal projections and public forecasts and the other allegations except that the claim with respect to guaranteed minimums that the Company allegedly knew it was unable to meet was eliminated. The Company filed a motion to dismiss the SAC and that motion was granted with leave to replead. A Third Amended Complaint (“TAC”) was filed on March 23, 2015 with similar allegations. The Company filed a motion to dismiss the TAC and that motion was argued on July 22, 2015; after argument it was taken on submission and a decision has not been issued. The foregoing is a summary of the pleadings and is subject to the text of the pleadings which are on file with the Court. We believe that the claims in the Class Action are without merit, and we intend to defend vigorously against them. However, because the Class Action is in a preliminary stage, we cannot assure you as to its outcome, or that an adverse decision in such action would not have a material adverse effect on our business, financial condition or results of operations.

On February 25, 2014, a shareholder derivative action was filed in the Central District of California by Advanced Advisors, G.P. against the Company, nominally, and against Messrs. Berman, Bennett, Miller, Skala, Glick, Ellin, Almagor, Poulsen and Reilly and Ms. Brodsky (Advanced Partners, G.P., v. Berman, et al., CV14-1420 (DSF)).On March 6, 2014, a second shareholder derivative action alleging largely the same claims against the same defendants was filed in the Central District of California by Louisiana Municipal Police Employees Retirement System (Louisiana Municipal Police Employees Retirement System v, Berman et al., CV14-1670 (GHF). On April 17, 2014, the cases were consolidated under Case No. 2:14-01420-JAK (SSx) (the “Derivative Action”). On April 30, 2014, a consolidated amended complaint (“CAC”) was filed, which alleged (i) a claim for contribution under Sections 10(b) and 21(D) of the Securities Exchange Act related to allegations made in the Class Action; (ii) derivative and direct claims for alleged violations of Section 14 of the Exchange Act and Rule 14a-9 promulgated thereunder related to allegedly misleading statements about Mr. Berman’s compensation plan in the Company’s October 25, 2013 proxy statement; (iii) derivative claims for breaches of fiduciary duty related to the Company’s response to an unsolicited indication of interest from Oaktree Capital, stock repurchase, standstill agreement with the Clinton Group, and decisions related to the NantWorks joint venture; and (iv) claims against Messrs. Berman and Bennett for breach of fiduciary duty related to the Class Action. The CAC seeks compensatory damages, pre-judgment and post-judgment interest, and declaratory and equitable relief. The foregoing is a summary of the CAC and is subject to the text of the CAC, which is on file with the Court. A motion to dismiss the CAC or, in the alternative, to stay the CAC, was filed in May 2014. The Court granted the motion in part and denied the motion in part with leave for plaintiff to file an amended pleading. Plaintiff declined to do so. Accordingly, claims i, ii and iv have been dismissed and only the elements of claim iii not relating to the NantWorks joint venture remain. Thus, there are no surviving claims against Messrs. Poulsen, Reilly and Bennett and Ms. Brodsky and the Court approved the parties’ stipulation to strike their names as defendants in the CAC. Pleadings in response to the CAC were filed on October 30, 2014, which are on file with the Court. The matter was referred to mediation by the Court and the parties, at the mediation, reached an agreement in principle to resolve the action. Thereafter the parties entered into a memorandum of such agreement, subject to Court approval. A motion was filed seeking preliminary approval of the settlement and establishment of the procedure for final approval of the settlement; preliminary approval of the settlement was granted and a hearing regarding final approval of the proposed settlement and attorneys’ fees in connection therewith took place on November 2, 2015. At the hearing, the Judge indicated that he would approve the settlement with a formal order, and that he would take the attorneys’ fee issue under advisement.

We are a party to, and certain of our property is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of our business, but we do not believe that any of these claims or proceedings will have a material effect on our business, financial condition or results of operations.

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Item 4.  Mine Safety Disclosures

Not applicable.

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PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on the Nasdaq Global Select exchange under the symbol “JAKK.” The following table sets forth, for the periods indicated, the range of high and low sales prices for our common stock on this exchange.

	Price Range of Common Stock
	High		Low
2014:
First quarter	$	7.55	$	5.45
Second quarter		9.48		6.92
Third quarter		8.58		6.23
Fourth quarter		8.99		6.13
2015:
First quarter		7.30		5.70
Second quarter		10.09		6.60
Third quarter		10.28		8.26
Fourth quarter		9.02		7.36

Performance Graph

The graph and tables below display the relative performance of our common stock, the Russell 2000 Price Index (the “Russell 2000”) and a peer group index, by comparing the cumulative total stockholder return (which assumes reinvestment of dividends, if any) on an assumed $100 investment on December 31, 2010 in our common stock, the Russell 2000 and the peer group index over the period from January 1, 2010 to December 31, 2015.

In accordance with recently enacted regulations implemented by the Securities and Exchange Commission, we retained the services of an expert compensation consultant. In the performance of its services, such consultant used a peer group index for its analysis of our compensation policies. We believe that these companies represent a cross-section of publicly-traded companies with product lines and businesses similar to our own throughout the comparison period and, accordingly, we are using the same peer group for purposes of the performance graph. EMak Worldwide Inc. and THQ Inc. were excluded from the performance peer group in 2014 and Kid Brands, Inc. was excluded in 2015. Our peer group index includes the following companies: Activision Blizzard, Inc., Electronic Arts, Inc. Hasbro, Inc. Leapfrog Enterprises, Inc., Mattel, Inc. and Take-Two Interactive, Inc.

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The historical performance data presented below may not be indicative of the future performance of our common stock, any reference index or any component company in a reference index.

Annual Return Percentage

	December 31, 2011			December 31, 2012			December 31, 2013			December 31, 2014			December 31, 2015
JAKKS Pacific		(21.6	)%		(9.0	)%		(45.6	)%		1.2	%		17.1	%
Peer Group		2.2			1.0			52.5			11.3			44.2
Russell 2000		(4.2	)		16.3			38.8			4.9			(4.4	)

Indexed Returns

	January 1, 2010		December 31, 2011		December 31, 2012		December 31, 2013		December  31, 2014		December 31, 2015
JAKKS Pacific	$	100.0	$	78.4	$	71.3	$	38.8	$	39.3	$	46.0
Peer Group		100.0		102.2		103.2		157.3		175.1		252.5
Russell 2000		100.0		95.8		111.5		154.8		162.4		155.2

Security Holders

To the best of our knowledge, as of March 7, 2016, there were 100 holders of record of our common stock. We believe there are numerous beneficial owners of our common stock whose shares are held in “street name.”

Dividends

In July 2011, we implemented a cash dividend program in the amount of $0.40 per share annually, payable on a quarterly basis to holders of record of our common stock. Effective February 20, 2013, the dividend amount was reduced to $0.28 per share annually and effective July 17, 2013, the dividend program was suspended. During 2012, we paid total dividends per share of $0.40 to holders of our common stock, and during 2013, we paid total dividends per share of $0.14. The payment of dividends on common stock is at the discretion of the Board of Directors and is subject to customary limitations.

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Equity Compensation Plan Information

The table below sets forth the following information as of the year ended December 31, 2015 for (i) all compensation plans previously approved by our stockholders and (ii) all compensation plans not previously approved by our stockholders, if any:

(a)  the number of securities to be issued upon the exercise of outstanding options, warrants and rights;

(b)  the weighted-average exercise price of such outstanding options, warrants and rights; and

(c)  other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plans.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)		Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (b)		Number of  Securities Remaining  Available for Future Issuance  Under Equity  Compensation Plans, Excluding Securities Reflected  in Column (a) (c)
Equity compensation plans approved by security holders		―	$	―		708,123
Equity compensation plans not approved by security holders		―		―		—
Total		―	$	―		708,123

Equity compensation plans approved by our stockholders consists of the 2002 Stock Award and Incentive Plan. An additional 1.4 million shares were added to the number of total issuable shares under the Plan and approved by the Board in 2013. Additionally, 411,409 shares of restricted stock awards remained unvested as of December 31, 2015.  Disclosures with respect to equity issuable to certain of our executive officers pursuant to the terms of their employment agreements is disclosed below under Item 11.

Issuer Purchases of Equity Securities

Period	(a) Total number of shares purchased		(b) Average price paid per share		(c) Total number of shares purchased as part of publicly announced plans or programs		(d) Maximum dollar value of shares that may yet be purchased under the plans or programs
October 1-31, 2015		225,967	$	8.33		225,967	$	21,129,608
November 1-30, 2015		49,799		8.00		49,799		20,731,111
December 1-31, 2015		497,562		7.88		497,562		16,807,881
Total		773,328		8.02		773,328

In June 2015, the Board of Directors authorized a stock repurchase program, under which the Company could repurchase up to $30.0 million of the Company’s common stock and/or convertible senior notes payable from time to time. As of December 31, 2015, the Company had repurchased 1,547,361 shares at a total cost of $13.2 million, of which 1,000,000 shares have been retired and cancelled, and 547,361 shares are held by the Company in the form of Treasury shares.

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Item 6.  Selected Financial Data

You should read the financial data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (included in Item 7) and our consolidated financial statements and the related notes (included in Item 8).

	Years Ended December 31,
	2011			2012			2013			2014			2015
	(In thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales	$	677,751		$	666,762		$	632,925		$	810,060		$	745,741
Cost of sales		483,761			468,825			477,146			574,253			517,172
Gross profit		193,990			197,937			155,779			235,807			228,569
Selling, general and administrative expenses		192,710			211,159			195,296			203,326			198,039
Reorganization charges		―			―			5,015			1,154			―
Income (loss) from operations		1,280			(13,222	)		(44,532	)		31,327			30,530
Change in fair value of business combination liability		―			―			6,000			5,932			5,642
Profit from video game joint venture		6,000			3,000			―			—			2,701
Income (loss) from joint ventures		(34	)		130			(3,148	)		314			60
Interest income		412			671			327			112			62
Interest expense		(8,196	)		(9,228	)		(9,942	)		(12,461	)		(12,402	)
Income (loss) before provision (benefit) for income taxes		(538	)		(18,649	)		(51,295	)		25,224			26,593
Provision (benefit) for income taxes		(9,010	)		86,151			2,611			3,715			3,423
Net income (loss)		8,472			(104,800	)		(53,906	)		21,509			23,170
Net loss attributable to non-controlling interests		―			―			―			―			(84	)
Net income (loss) attributable to JAKKS Pacific, Inc.	$	8,472		$	(104,800	)	$	(53,906	)	$	21,509		$	23,254
Basic earnings (loss) per share	$	0.32		$	(4.37	)	$	(2.43	)	$	1.03		$	1.20
Diluted earnings (loss) per share	$	0.32		$	(4.37	)	$	(2.43	)	$	0.70		$	0.71
Dividends declared per common share	$	0.20		$	0.40		$	0.14		$	—		$	—

During the third quarter of 2015, we recorded income of $5.6 million related to the reversal of a portion of the Maui earn-out and during the second and fourth quarters of 2015 we recorded an aggregate of $2.7 million related to our former video game joint venture with THQ.

During the second quarter of 2014, we incurred restructuring charges of $1.2 million related to office space consolidations as part of the reorganization plan which commenced in the third quarter of 2013. During the third quarter of 2014, we recorded income of $5.9 million related to the reversal of a portion of the Maui earn-out. The Maui earn-out reversal was due to Maui not achieving the prescribed earn-out targets in 2014.

In 2013, we booked a charge of $14.9 million related to the write-down of certain excess and impaired inventory. We also booked a charge of $14.4 million related to the write-down of license advances and minimum guarantees that are not expected to be earned through sales of that licensed product. During the fourth quarter of 2013, we incurred restructuring charges of $5.0 million related to the office space consolidations given the decrease in sales in 2013, and recorded income of $6.0 million related to the reversal of a portion of the Maui earn-out. The Maui earn-out reversal was due to Maui not achieving the prescribed earn-out targets in 2013.

During the third quarter of 2012, we acquired Maui, Inc., an Ohio corporation, Kessler Services, Inc., a Nevada corporation, and A.S. Design Limited, a Hong Kong corporation (collectively, “Maui”).

During the fourth quarter of 2011, we acquired Moose Mountain Toymakers Limited, a Hong Kong corporation, and Moose Mountain Marketing, Inc., a New Jersey Corporation (collectively, “Moose Mountain”).

	At December 31,
	2011		2012		2013		2014		2015
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	257,258	$	189,321	$	117,071	$	71,525	$	102,528
Working capital		374,652		186,581		136,337		246,245		252,228
Total assets		615,234		554,825		449,844		561,782		505,900
Short-term debt		―		70,710		38,098		―		―
Long-term debt		92,188		94,918		100,000		215,000		215,000
Total stockholders’ equity		393,591		207,220		148,685		145,084		153,406

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. You should read this section in conjunction with our consolidated financial statements and the related notes (included in Item 8).

Critical Accounting Policies

The accompanying consolidated financial statements and supplementary information were prepared in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements, Item 8. Inherent in the application of many of these accounting policies is the need for management to make estimates and judgments in the determination of certain revenues, expenses, assets and liabilities. As such, materially different financial results can occur as circumstances change and additional information becomes known. The policies with the greatest potential effect on our results of operations and financial position include:

Allowance for Doubtful Accounts.    Our allowance for doubtful accounts is based upon management’s assessment of the business environment, customers’ financial condition, historical collection experience, accounts receivable aging, customer disputes and the collectability of specific customer accounts. If there were a deterioration of a major customer’s creditworthiness, or actual defaults were higher than our historical experience, our estimates of the recoverability of amounts due to us could be overstated, which could have an adverse impact on our operating results. Our allowance for doubtful accounts is also affected by the time at which uncollectible accounts receivable balances are actually written off.

Major customers’ accounts are monitored on an ongoing basis; more in-depth reviews are performed based upon changes in a customer’s financial condition and/or the level of credit being extended. When a significant event occurs, such as a bankruptcy filing by a specific customer, and on a quarterly basis, the allowance is reviewed for adequacy and the balance or accrual rate is adjusted to reflect current risk prospects.

Revenue Recognition. Our revenue recognition policy is to recognize revenue when persuasive evidence of an arrangement exists, title transfer has occurred (product shipment), the price is fixed or determinable and collectability is reasonably assured. Sales are recorded net of sales returns and discounts, which are estimated at the time of shipment based upon historical data. JAKKS routinely enters into arrangements with its customers to provide sales incentives and support customer promotions and we provide allowances for returns and defective merchandise. Such programs are primarily based upon customer purchases, customer performance of specified promotional activities and other specified factors such as sales to consumers. Accruals for these programs are recorded as sales adjustments that reduce gross revenue in the period the related revenue is recognized.

Goodwill and other indefinite-lived intangible assets.  Goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment at least annually at the reporting unit level.

Factors we consider important that could trigger an impairment review include the following:

● significant underperformance relative to expected historical or projected future operating results;

● significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and

● significant negative industry or economic trends.

Due to the subjective nature of the impairment analysis, significant changes in the assumptions used to develop the estimate could materially affect the conclusion regarding the future cash flows necessary to support the valuation of long-lived assets, including goodwill. The valuation of goodwill involves a high degree of judgment and uncertainty related to our key assumptions. Any changes in our key projections or estimates could result in a reporting unit either passing or failing the first step of the impairment model, which could significantly change the amount of any impairment ultimately recorded.

    Based upon the assumptions underlying the valuation, impairment is determined by estimating the fair value of a reporting unit and comparing that value to the reporting unit’s book value. Goodwill is tested for impairment annually. If the implied fair value is more than the book value of the reporting unit, an impairment loss is not indicated. If impairment exists, the fair value of the reporting unit is allocated to all of its assets and liabilities excluding goodwill, with the excess amount representing the fair value of goodwill. An impairment loss is measured as the amount by which the book value of the reporting unit’s goodwill exceeds the estimated fair value of that goodwill. 

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The Company assessed its goodwill for impairment as of October 1, 2015 for each of its reporting units by evaluating qualitative factors, including, but not limited to, the performance of each reporting unit, general economic conditions, access to capital, the industry and competitive environment, the interest rate environment. Utilizing the aforementioned, the Company reviewed step-one of its impairment model and determined that it was not likely that the fair value of its reporting units were less than the carrying amounts. As such, the Company determined there was no indication of impairment to be recorded. The amount of goodwill assigned to each of the two reporting units, traditional toys and electronics and role play, novelty and seasonal toys, amounted to $24.6 million and $19.6 million, respectively.

Goodwill and intangible assets amounted to $88.7 million as of December 31, 2015.

Reserve for Inventory Obsolescence.  We value our inventory at the lower of cost or market. Based upon a consideration of quantities on hand, actual and projected sales volume, anticipated product selling prices and product lines planned to be discontinued, slow-moving and obsolete inventory is written down to its net realizable value.

Failure to accurately predict and respond to consumer demand could result in us under-producing popular items or overproducing less popular items. Furthermore, significant changes in demand for our products would impact management’s estimates in establishing our inventory provision.

Management estimates are monitored on a quarterly basis and a further adjustment to reduce inventory to its net realizable value is recorded, as an increase to cost of sales, when deemed necessary under the lower of cost or market standard.

Income Allocation for Income Taxes.

Our annual income tax provision and related income tax assets and liabilities are based upon actual income as allocated to the various tax jurisdictions based upon our transfer pricing study, US and foreign statutory income tax rates and tax regulations and planning opportunities in the various jurisdictions in which we operate. Significant judgment is required in interpreting tax regulations in the U.S. and foreign jurisdictions, and in evaluating worldwide uncertain tax positions. Actual results could differ materially from those judgments, and changes from such judgments could materially affect our consolidated financial statements.

Income taxes and interest and penalties related to income tax payable.

We do not file a consolidated return for our foreign subsidiaries. We file federal and state returns and our foreign subsidiaries each file returns in their respective jurisdictions, as applicable. Deferred taxes are provided on a liability method, whereby deferred tax assets are recognized as deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

We must assess the likelihood that we will be able to recover our deferred tax assets. Deferred tax assets are reduced by a valuation allowance, if, based upon the weight of available evidence, it is more likely than not that we will not realize some portion or all of the deferred tax assets. We consider all available positive and negative evidence when assessing whether it is more likely than not that deferred tax assets are recoverable. We consider evidence such as our past operating results, the existence of cumulative losses in previous periods and our forecast of future taxable income. We believe this to be a critical accounting policy because should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that the recovery is not likely, as well as decrease in the period in which the assessment of the recoverability of the deferred tax assets reverses, which could have a material impact on our results of operations.

We have not provided for United States federal income and foreign withholding taxes on the undistributed earnings of our foreign subsidiaries because we intend to reinvest such earnings indefinitely. Should we decide to remit this income to the U.S. in a future period, our provision for income taxes may increase materially in the period that our intent changes.

We accrue a tax reserve for additional income taxes and interest, which may become payable in future years as a result of audit adjustments by tax authorities. The reserve is based upon management’s assessment of all relevant information and is periodically reviewed and adjusted as circumstances warrant. As of December 31, 2015, our income tax reserves were approximately $2.2 million and relates to the potential tax settlement in Hong Kong and adjustments in the area of withholding taxes.

We recognize current period interest expense and the reversal of previously recognized interest expense that has been determined to not be assessable due to the expiration of the related audit period or other compelling factors on the income tax liability for unrecognized tax benefits as interest expense, and penalties and penalty reversals related to the income taxes payable as other expense in our consolidated statements of operations.

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Share-Based Compensation.

We grant restricted stock and options to purchase our common stock to our employees (including officers) and non-employee directors under our 2002 Stock Award and Incentive Plan (the “Plan”), which incorporated the shares remaining under our Third Amended and Restated 1995 Stock Option Plan. The benefits provided under the Plan are share-based payments. Related to the stock option grants, we estimate the value of share-based awards on the date of grant using the Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, cancellations, terminations, risk-free interest rates and expected dividends. Related to the restricted stock award grants, we determine the value of each award based on the market value of the underlying common stock at the date of each grant and expense each award over the stipulated service period.

Recent Accounting Pronouncements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In April 2015, the FASB issued for public comment a proposed ASU to defer the effective date of ASU 2014-09 and in July 2015, affirmed its proposal to defer the effective date of the new revenue standard for all entities by one year. The mandatory adoption date of Accounting Standards Codification (“ASC”) ASC 606 is now January 1, 2018. There are two methods of adoption allowed, either: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2018.

In August 2014, the FASB amended the FASB Accounting Standards Codification and amended Subtopic 205-40, “Presentation of Financial Statements — Going Concern.” This amendment prescribes that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The amendments will become effective for our annual and interim reporting periods beginning January 1, 2017. Upon adoption we will use this guidance to evaluate going concern.

In April 2015, the FASB issued Accounting Standards Update 2015-03, “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendment will be effective for our annual and interim reporting periods beginning January 1, 2016 and should be applied on a retrospective basis. The adoption of ASU 2015-03 will not have any impact on our results of operations, but will result in debt issuance costs being presented as a direct reduction from the carrying amount of debt liabilities.

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires inventory accounted for under the FIFO or average cost method to be measured using the lower of cost and net realizable value. The amendments are effective prospectively for fiscal years and for interim periods beginning after December 15, 2016. We are currently evaluating the impact of the pending adoption of ASU 2015-11 on the consolidated financial statements.

In August 2015, the FASB issued Accounting Standards Update 2015-15, “Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”). ASU 2015-15 codifies an SEC staff announcement that entities are permitted to defer and present debt issuance costs related to line-of-credit arrangements as assets. The announcements were effective upon issuance. The adoption of ASU 2015-15 does not have any impact on our consolidated financial statements.

In November 2015, the FASB issued Accounting Standards Update 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the impact that of ASU 2015-17 will have on our financial position or financial statement disclosures.

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of the pending adoption of this new standard on our financial statements.

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Results of Operations

The following table sets forth, for the periods indicated, certain statement of operations data as a percentage of net sales.

	Years Ended December 31,
	2013			2014			2015
Net Sales		100.0	%		100.0	%		100.0	%
Cost of Sales		75.4			70.9			69.4
Gross profit		24.6			29.1			30.6
Selling, general and administrative expenses		31.6			25.2			26.5
Income (loss) from operations		(7.0	)		3.9			4.1
Change in fair value of business combination liability		0.9			0.7			0.8
Profit from video game joint venture		―			―			0.4
Loss from joint ventures		(0.5	)		―			―
Interest income		0.1			―			―
Interest expense		(1.6	)		(1.5	)		(1.7	)
Income (loss) before provision for income taxes		(8.1	)		3.1			3.6
Provision for income taxes		0.4			0.4			0.5
Net income (loss)		(8.5	)		2.7			3.1
Net loss attributable to non-controlling interests		―			―			―
Net income (loss) attributable to JAKKS Pacific, Inc.		(8.5	)%		2.7	%		3.1	%

The following table summarizes, for the periods indicated, certain income statement data by segment (in thousands).

	Years Ended December 31,
	2013		2014		2015
Net Sales
Traditional Toys and Electronics	$	320,565	$	408,426	$	437,683
Role Play, Novelty and Seasonal Toys		312,360		401,634		308,058
		632,925		810,060		745,741
Cost of Sales
Traditional Toys and Electronics		244,183		284,261		300,512
Role Play, Novelty and Seasonal Toys		232,963		289,992		216,660
		477,146		574,253		517,172
Gross Profit
Traditional Toys and Electronics		76,382		124,165		137,171
Role Play, Novelty and Seasonal Toys		79,397		111,642		91,398
	$	155,779	$	235,807	$	228,569

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Comparison of the Years Ended December 31, 2014 and 2015

Net Sales

Traditional Toys and Electronics.   Net sales of our Traditional Toys and Electronics segment were $437.7 million in 2015, compared to $408.4 million in 2014, representing an increase of $29.3 million, or 7.2%. The increase in net sales was primarily due to increases in unit sales of our toddler dolls based on Disney Frozen, and our Nintendo plush and figures and Star Wars figures, Disney Princess dolls, Cinderella and Fairies, Funnoodle water toys and licensed foot-to-floor ride-ons and wagons.

Role Play, Novelties and Seasonal Products. Net sales of our Role Play, Novelties and Seasonal Products were $308.1 million in 2015, compared to $401.6 million in 2014, representing a decrease of $93.5 million, or 23.3%. The decrease in net sales was primarily due to lower unit sales given the difficult annual comparable with the relative strength of the performance of the Frozen and Marvel brands in 2014.

Cost of Sales

Traditional Toys and Electronics.  Cost of sales of our Traditional Toys and Electronics segment was $300.5 million, or 68.7% of related net sales, in 2015, compared to $284.3 million, or 69.6% of related net sales, in 2014, representing an increase of $16.2 million, or 5.7%. This percentage cost of sales decrease was driven by improved product costing and stronger margins on new products in 2015.

Role Play, Novelties and Seasonal Products.  Cost of sales of our Role Play, Novelties and Seasonal Products segment was $216.7 million in 2015, or 70.3% of related net sales, compared to $290.0 million in 2014, or 72.2% of related net sales, representing a decrease of $73.3 million, or 25.3%. This percentage cost of sales decrease was driven by better product costing on legacy items and stronger margins on new products in 2015. Also contributing to the percentage decrease in 2015 is the absence of lower selling prices of Marvel Halloween costumes that we had in 2014.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $198.0 million in 2015 and $204.5 million in 2014, constituting 26.6% and 25.2% of net sales, respectively. The overall relative increase of selling, general and administrative expenses as a percentage of Net Sales in 2015 is the result of the comparative decrease in net sales in 2015 compared to 2014. The overall decrease of $6.5 million is primarily due to lower advertising spend in 2015 partially offset by increased Salaries and Benefits in 2015 versus 2014.

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Reorganization Charges

We incurred reorganization charges in 2013 to consolidate and stream-line our existing business functions. This was necessary given the decreased volume of consolidated sales in 2013 from 2012. Restructuring charges relate to the termination of lease obligations, one-time severance termination benefits, and other contract terminations and are accounted for in accordance with ASC 420-10 “Exit and Disposal Cost Obligations”. We establish a liability for a cost associated with an exit or disposal activity when a liability is incurred, rather than at the date we commit to an exit plan.

The components of the reorganization charges are as follows (in thousands):

	Accrued Balance							Accrued Balance
	December 31, 2014		Accrual		Payments			December 31, 2015
2013 lease abandonment costs	$	1,258		—		(1,168	)	$	90
2009 lease abandonment costs		368		—		(368	)		—
Total reorganization charges	$	1,626		—		(1,536	)	$	90

Interest Income

Interest income in 2015 was $ 0.1 million, comparable to $0.1 million in 2014 due to lower cash balances in 2015 offset by a higher proportion of investible cash.

Interest Expense

Interest expense was $12.4 million in 2015, as compared to $12.5 million in 2014. In 2015, we recorded interest expense of $11.5 million related to our convertible senior notes payable and $0.9 million related to our credit facility. In 2014, we recorded interest expense of $11.3 million related to our convertible senior notes payable, $0.8 million related to our credit facility, $0.2 million of uncertain tax expense and $0.2 million related to the interest component of our Maui acquisition earn out payment.

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Provision for Income Taxes

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $3.4 million, or an effective tax rate of 12.9% for 2015. During 2014, the income tax expense was $3.7 million, or an effective tax rate of 14.7%.

The 2015 tax expense of $3.4 million included a discrete tax expense of $0.9 million primarily comprised of return to provision adjustments. Absent these discrete tax expenses, our effective tax rate for 2015 was 9.5%, primarily due to a full valuation allowance on the Company's United States deferred tax assets and the foreign rate differential, and is impacted by the proportion of Hong Kong earnings to overall earnings and is expected to vary depending on the level of consolidated earnings.

The 2014 tax expense of $3.7 million included a discrete tax benefit of $0.3 million comprised of adjustments from closed tax audits (see Note 13 of the Notes to Consolidated Financial Statements). Absent these discrete tax expenses, our effective tax rate for 2014 was 13.6%, primarily due to a full valuation allowance on the Company’s United States deferred tax assets and the foreign rate differential, and is impacted by the proportion of Hong Kong earnings to overall earnings and is expected to vary depending on the level of consolidated earnings.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. For the three-year period ended December 31, 2015, we were in a cumulative pre-tax loss position in the U.S. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $100.9 million has been recorded against the U.S. deferred tax assets that more likely than not will not be realized. The net deferred tax liabilities of $2.3 million represent the net deferred tax liabilities in the foreign jurisdiction, where we are in a cumulative income position.

As of December 31, 2015, we had net deferred tax liabilities of approximately $2.3 million related to foreign jurisdictions.

 Comparison of the Years Ended December 31, 2014 and 2013

Net Sales

Traditional Toys and Electronics.  Net sales of our Traditional Toys and Electronics segment were $408.4 million in 2014, compared to $320.6 million in 2013, representing an increase of $87.8 million, or 27.4%. The increase in net sales was primarily due to increases in unit sales of our toddler dolls based on Disney Frozen, and our Nintendo plush and figures and Star Wars figures.

Role Play, Novelties and Seasonal Products. Net sales of our Role Play, Novelties and Seasonal Products were $401.6 million in 2014, compared to $312.4 million in 2013, representing an increase of $89.2 million, or 28.6%. The increase in net sales was primarily due to sales contribution of Disney Princess dress up and role-play including Frozen, Princess and Fairies as well as an increase in our unit sales of our Halloween costumes based on Disney Frozen and Marvel characters offset in part by a decrease in the selling price of such Marvel costumes.

Cost of Sales

Traditional Toys and Electronics.  Cost of sales of our Traditional Toys and Electronics segment was $284.3 million, or 69.6% of related net sales, in 2014, compared to $244.2 million, or 76.2% of related net sales, in 2013, representing an increase of $40.1 million, or 16.4%. The percentage cost of sales decrease was driven by better product costing and better price points and lower license shortfalls in 2014.

Role Play, Novelties and Seasonal Products.  Cost of sales of our Role Play, Novelties and Seasonal Products segment was $290.0 million in 2014, or 72.2% of related net sales, compared to $233.0 million in 2013, or 74.6% of related net sales, representing an increase of $57.0 million, or 24.5%. This percentage cost of sales decrease was driven by better product costing and stronger price points in line with the higher volume of sales and lower license shortfalls in 2014 offset in part by lower selling price of Marvel Halloween costumes.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $204.5 million in 2014 and $200.3 million in 2013, constituting 25.2% and 31.6% of net sales, respectively. The overall relative decrease of selling, general and administrative expenses as a percentage of Net Sales in 2014 is the result of the significant increase in net sales in 2014 and operational efficiencies. The overall increase of $4.2 million is primarily due to performance bonuses awarded in 2014 due to the overall increase in profitability of the Company.

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Reorganization Charges

We incurred reorganization charges in 2013 to consolidate and stream-line our existing business functions. This was necessary given the decreased volume of consolidated sales in 2013 from 2012. Restructuring charges relate to the termination of lease obligations, one-time severance termination benefits, and other contract terminations and are accounted for in accordance with ASC 420-10 “Exit and Disposal Cost Obligations”. We establish a liability for a cost associated with an exit or disposal activity when a liability is incurred, rather than at the date we commit to an exit plan.

The components of the reorganization charges are as follows (in thousands):

	Accrued Balance							Accrued Balance
	December 31, 2013		Accrual		Actual			December 31, 2014
2013 lease abandonment costs	$	2,962		—		(1,704	)	$	1,258
2009 lease abandonment costs		1,219		—		(851	)		368
Total reorganization charges	$	4,181		—		(2,555	)	$	1,626

Interest Income

Interest income in 2014 was $ 0.1 million, compared to $0.3 million in 2013. The decrease in interest income is due to lower cash balances in 2014.

Interest Expense

Interest expense was $12.5 million in 2014, as compared to $9.9 million in 2013. The increase is due to the additional interest expense related to our convertible senior notes payable due in 2020. In 2014, we recorded interest expense of $11.3 million related to our convertible senior notes payable, $0.8 million related to our credit facility, $0.2 million of uncertain tax expense and $0.2 million related to the interest component of our Maui acquisition earn out payment. In 2013, we recorded interest expense of $8.1 million related to our convertible senior notes payable, $0.9 million related to our credit facility and $0.8 million related to the interest component of our Maui acquisition earn out payment.

30

Provision for Income Taxes

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $3.7 million, or an effective tax rate of 14.7% for 2014. During 2013, the income tax expense was $2.6 million, or an effective tax rate of (5.1%).

The 2014 tax expense of $3.7 million included a discrete tax expense of $0.3 million primarily comprised of adjustments from closed tax audits (see Note 13 of the Notes to Consolidated Financial Statements.)  Absent these discrete tax expenses, our effective tax rate for 2014 was 13.6%; primarily due to a full valuation allowance on the Company's United States deferred tax assets and the foreign rate differential, and is impacted by the proportion of Hong Kong earnings to overall earnings and is expected to vary depending on the level of consolidated earnings.

The 2013 tax expense of $2.6 million included a discrete tax benefit of $0.3 million comprised of uncertain tax positions and return to provision true-ups (see Note 13 of the Notes to Consolidated Financial Statements). Absent these discrete tax expenses, our effective tax rate for 2013 was (5.8%), primarily due to a full valuation allowance on the Company’s United States deferred tax assets and the foreign rate differential between the United States and Hong Kong. The rate exclusive of discrete items can be materially impacted by the proportion of Hong Kong earnings to consolidated earnings.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. For the three-year period ended December 31, 2014, we were in a cumulative pre-tax loss position in the U.S. On the basis of this evaluation, as of December 31, 2014, a valuation allowance of $106.8 million has been recorded against the U.S. deferred tax assets that more likely than not will not be realized. The net deferred tax liabilities of $2.6 million represent the net deferred tax liabilities in the foreign jurisdiction, where we are in a cumulative income position.

As of December 31, 2014, we had net deferred tax liabilities of approximately $2.6 million related to foreign jurisdictions.

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Quarterly Fluctuations and Seasonality

We have experienced significant quarterly fluctuations in operating results and anticipate these fluctuations in the future. The operating results for any quarter are not necessarily indicative of results for any future period. Our first quarter is typically expected to be the least profitable as a result of lower net sales but substantially similar fixed operating expenses. This is consistent with the performance of many companies in the toy industry.

The following table presents our unaudited quarterly results for the years indicated. The seasonality of our business is reflected in this quarterly presentation.

	2014												2015
(unaudited)	First			Second			Third			Fourth			First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
Net sales	$	82,510		$	124,172		$	349,362		$	254,016		$	114,201		$	131,106		$	337,027		$	163,407
As a % of full year		10.2	%		15.3	%		43.1	%		31.4	%		15.3	%		17.6	%		45.2	%		21.9	%
Gross Profit	$	23,555		$	37,818		$	94,737		$	79,697		$	35,378		$	39,287		$	104,329		$	49,575
As a % of full year		10	%		16	%		40.2	%		33.8	%		15.5	%		17.2	%		45.6	%		21.7	%
As a % of net sales		28.5	%		30.5	%		27.1	%		31.4	%		31	%		30	%		31	%		30.3	%
Income (loss) from operations	$	(14,924	)	$	(4,819	)	$	43,812		$	7,258		$	(4,199	)	$	(3,008	)	$	44,628		$	(6,891	)
As a % of full year		(47.6	)%		(15.4	)%		139.8	%		23.2	%		(13.8	)%		(9.8	)%		146.2	%		(22.6	)%
As a % of net sales		(18.1	)%		(3.9	)%		12.5	%		2.9	%		(3.7	)%		(2.3	)%		13.2	%		(4.2	)%
Income (loss) before provision (benefit) for income taxes	$	(16,789	)	$	(7,772	)	$	45,807		$	3,978		$	(7,154	)	$	(4,414	)	$	47,239		$	(9,078	)
As a % of net sales		(20.3	)%		(6.3	)%		13.1	%		1.6	%		(6.3	)%		(3.4	)%		14	%		(5.6	)%
Net income (loss)	$	(16,305	)	$	(9,053	)	$	44,069		$	2,798		$	(7,581	)	$	(5,727	)	$	45,864		$	(9,386	)
As a % of net sales		(19.8	)%		(7.3	)%		12.6	%		1.1	%		(6.6	)%		(4.4	)%		13.6	%		(5.7	)%
Net loss attributable to non-controlling interests	$	—		$	—		$	—		$	—		$	—		$	(47	)	$	19		$	(56	)
As a % of net sales		—	%		—	%		—	%		—	%		—	%		—	%		—	%		—	%
Net income (loss) attributable to JAKKS Pacific, Inc.	$	(16,305	)	$	(9,053	)	$	44,069		$	2,798		$	(7,581	)	$	(5,680	)	$	45,845		$	(9,330	)
As a % of net sales		(19.8	)%		(7.3	)%		12.6	%		1.1	%		(6.6	)%		(4.3	)%		13.6	%		(5.7	)%
Diluted earnings (loss) per share	$	(0.74	)	$	(0.43	)	$	1.03		$	0.11		$	(0.40	)	$	(0.30	)	$	1.12		$	(0.50	)
Weighted average shares and equivalents outstanding		22,003			21,276			45,152			44,060			19,090			19,108			42,562			18,781

Consistent with the seasonality of our business, first and second quarters of 2014 and 2015 and fourth quarter of 2015, experienced seasonally low sales which coupled with fixed overhead resulted in significant net losses.

In the second quarter of 2014, we recognized a charge to income in the amount of $1.2 million related to lease exit costs in connection with our reorganization efforts.

In the third quarter of 2014 and 2015, income of $5.9 million and $5.6 million, respectively was recognized in connection with the change in fair value of the Maui acquisition liability.

32

Quarterly and year-to-date computations of income (loss) per share amounts are made independently. Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for the year.

Debt with Conversion and Other Options

In July 2013, the Company sold an aggregate of $100.0 million principal amount of 4.25% Convertible Senior Notes due 2018 (the “2018 Notes”). The 2018 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on August 1 and February 1 of each year at a rate of 4.25% per annum and will mature on August 1, 2018. The initial conversion rate for the 2018 Notes will be 114.3674 shares of our common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $8.74 per share of common stock, subject to adjustment in certain events. Holders of the 2018 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2018 Notes will be settled in shares of the Company’s common stock

In June 2014, the Company sold an aggregate of $115.0 million principal amount of 4.875% Convertible Senior Notes due 2020 (the “2020 Notes”). The 2020 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on June 1 and December 1 of each year at a rate of 4.875% per annum and will mature on June 1, 2020. The initial conversion rate for the 2020 Notes will be 103.7613 shares of our common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $9.64 per share of common stock, subject to adjustment in certain events. Holders of the 2020 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2020 Notes will be settled in shares of the Company’s common stock. The Company received net proceeds of approximately $110.4 million from the offering of which $24.0 million was used to repurchase 3.1 million shares of the Company’s common stock under a prepaid forward purchase. In January 2016 we repurchased $2.0 million of the 2020 Notes.

Liquidity and Capital Resources

As of December 31, 2015, we had working capital of $252.2 million compared to $246.2 million as of December 31, 2014. The increase was primarily attributable to net income, partially offset by the repurchase of our common stock.

Operating activities used net cash of $22.4 million and $79.1 million and provided net cash of $66.3 million for the years ended December 31, 2013, 2014 and 2015, respectively. Net cash was favorably impacted primarily by decreases in accounts receivable and inventory, offset by decreases in accounts payable and accrued expenses. Our accounts receivable turnover as measured by days sales for the quarter outstanding in accounts receivable was 68 days, 83 days, and 90 days as of December 31, 2013, 2014, and 2015, respectively. Other than open purchase orders issued in the normal course of business, we have no obligations to purchase finished goods from our manufacturers. As of December 31, 2015, we had cash and cash equivalents of $102.5 million.

Cash used in investing activities totaled $10.8 million, $12.9 million and $22.2 million for the years ended December 31, 2013, 2014, and 2015, respectively. Cash used in 2015 consisted primarily of $18.3 million cash paid for the purchase of office furniture, equipment and molds and tooling used in the manufacturing of our products. Cash used in 2014 consisted primarily of $10.5 million cash paid for the purchase of office furniture, equipment and molds and tooling used in the manufacturing of our products. Cash used in 2013 consisted primarily of $10.1 million cash paid for the purchase of office furniture, equipment and molds and tooling used in the manufacturing of our products. As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties generally ranging from 1% to 20% payable on net sales of such products. As of December 31, 2015, these agreements required future aggregate minimum guarantees of $78.8 million, exclusive of $30.6 million in advances already paid. Of this $78.8 million future minimum guarantee, $32.4 million is due over the next twelve months.

Financing activities used cash of $39.0 million, provided cash of $46.0 million, and used cash of $13.4 million for the years ended December 31, 2013, 2014 and 2015, respectively. The cash used in 2015 consists primarily of the repurchase of our common stock.

The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of December 31, 2015 and is based upon information appearing in the notes to the consolidated financial statements (in thousands):

	Less than  1 year		1 – 3  years		3 – 5  years		More Than  5 years		Total
Long-term debt	$	—	$	100,000	$	115,000	$	—	$	215,000
Interest on debt		9,856		17,942		7,942		—		35,740
Operating leases		12,729		21,772		9,992		11,892		56,385
Minimum guaranteed license/royalty payments		32,427		46,355		10		—		78,792
Employment contracts		6,869		5,324		1,315		—		13,508
Total contractual cash obligations	$	61,881	$	191,393	$	134,259	$	11,892	$	399,425

The above table excludes any potential uncertain income tax liabilities that may become payable upon examination of our income tax returns by taxing authorities. Such amounts and periods of payment cannot be reliably estimated. See Note 13 to the consolidated financial statements for further explanation of our uncertain tax positions.

33

In October 2011, we acquired all of the stock of Moose Mountain Toymakers Limited, a Hong Kong company, and a related New Jersey company, Moose Mountain Marketing, Inc. (collectively, “Moose Mountain”). The total initial consideration of $31.5 million consisted of $16.0 million in cash and the assumption of liabilities in the amount of $15.5 million, and resulted in goodwill of $13.5 million. In addition, we agreed to pay an earn-out of up to an aggregate amount of $5.3 million in cash over the three calendar years following the acquisition based upon the achievement of certain financial performance criteria. We have paid $1.75 million for each of the earn-outs related to the years ended 2012, 2013 and 2014. The fair value of the expected earn-out was included in goodwill and assumed liabilities as of December 31, 2011. Moose Mountain is a leading designer and producer of foot to floor ride-ons, inflatable environments, wagons, pinball machines and tents and was included in our results of operations from the date of acquisition.

In July 2012, we acquired all of the stock of Maui, Inc., an Ohio corporation, Kessler Services, Inc., a Nevada corporation, and A.S. Design Limited, a Hong Kong corporation (collectively, “Maui”). The initial cash consideration totaled $36.2 million. In addition, we agreed to pay an earn-out of up to an aggregate amount of $18.0 million in cash over the three calendar years following the acquisition based upon the achievement of certain financial performance criteria, which has been accrued and recorded as goodwill as of December 31, 2012. All future changes to the earn-out liability will be charged to income. In 2013, 2014 and 2015, the earn-outs were not achieved and the related liability of $6.0 million, $5.9 million and $5.6 million, respectively, was reversed to other income. Maui is a leading manufacturer and distributor of spring and summer activity toys and impulse toys and was included in our results of operations from the date of acquisition.

In September 2012, we acquired all of the stock of JKID, LTD., a United Kingdom corporation for an initial cash consideration of $1.1 million and deferred cash payments of $5.5 million payable in five semi-annual payments of $1.1 million each. In addition, we agreed to pay compensation of up to an aggregate amount of $4.4 million in cash over the two year period of 2015 through 2016, based upon the achievement of certain financial performance criteria, which will be charged to expense when earned. JKID is the developer of augmented reality technology that enhances the play patterns of toys and consumer products.

34

In November 2009, the Company sold an aggregate of $100.0 million principal amount of 4.50% Convertible Senior Notes due 2014 (the “2014 Notes”). The 2014 Notes, which were senior unsecured obligations of the Company, paid cash interest semi-annually at a rate of 4.50% per annum and matured on November 1, 2014. On July 24, 2013, the Company repurchased an aggregate of $61.0 million principal amount of these notes at par plus accrued interest with a portion of the net proceeds from the issuance of $100.0 million principal amount of 4.25% convertible senior notes due 2018 resulting in a gain on extinguishment of $0.1 million. The remaining $39.0 million principal amount was repaid on maturity on November 1, 2014.

We believe that our cash flows from operations and cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements and provide us with adequate liquidity to meet our anticipated operating needs for at least the next 12 months. We expect our capital expenditures to be approximately $13.0 million in 2016. Although operating activities are expected to provide cash, to the extent we make any acquisitions or grow significantly in the future, our operating and investing activities may use cash and, consequently, any acquisitions or growth may require us to obtain additional sources of financing. There can be no assurance that any necessary additional financing will be available to us on commercially reasonable terms, if at all. We intend to finance our long-term liquidity requirements out of net cash provided by operations and net cash and cash equivalents. As of December 31, 2015, we do not have any off-balance sheet arrangements.

We have cumulative undistributed earnings of non-U.S. subsidiaries that we consider to be permanently reinvested outside the U.S. Should those earnings be repatriated to the U.S., we would incur additional tax expense. Other than for short-term financing needs of our U.S. parent company, we do not intend to repatriate those earnings to the U.S. The amount of cash and short term investments held by our foreign subsidiaries was $60.8 million and $91.7 million as of December 31, 2014 and 2015, respectively.

During the last three fiscal years ending December 31, 2015, we do not believe that inflation has had a material impact on our net sales and revenues and on income from continuing operations.

Exchange Rates

Sales from our United States and Hong Kong operations are denominated in U.S. dollars and our manufacturing costs are denominated in either U.S. or Hong Kong dollars. Operations and operating expenses of all of our operations are denominated in local currency, thereby creating exposure to changes in exchange rates. Changes in the Hong Kong dollar/U.S. dollar exchange rate may positively or negatively affect our operating results. The exchange rate of the Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government since 1983 at HK$7.80 to US$1.00 and, accordingly, has not represented a currency exchange risk to the U.S. dollar. We cannot assure you that the exchange rate between the United States and Hong Kong currencies will continue to be fixed or that exchange rate fluctuations between the United States and Hong Kong currencies will not have a material adverse effect on our business, financial condition or results of operations.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk in the areas of changes in United States and international borrowing rates and changes in foreign currency exchange rates. In addition, we are exposed to market risk in certain geographic areas that have experienced or remain vulnerable to an economic downturn, such as China. We purchase substantially all of our inventory from companies in China, and, therefore, we are subject to the risk that such suppliers will be unable to provide inventory at competitive prices. While we believe that, should such events occur we would be able to find alternative sources of inventory at competitive prices, we cannot assure you that we would be able to do so. These exposures are directly related to our normal operating and funding activities. To date, we have not used derivative instruments or engaged in hedging activities to minimize our market risk.

35

Interest Rate Risk

In July 2013, we issued convertible senior notes payable of $100.0 million with a fixed interest rate of 4.25% per annum which remain outstanding as of December 31, 2015. In addition, in June 2014, we issued convertible senior notes payable of $115.0 million principal amount with a fixed interest rate of 4.875% per annum, which remain outstanding as of December 31, 2015. As the interest rates on the notes are at fixed rates, we are not generally subject to any direct risk of loss related to these notes arising from changes in interest rates.

Our exposure to market risk includes interest rate fluctuations in connection with our revolving credit facility (see Note 11 - Credit Facility in the accompanying notes to the consolidated financial statements for additional information). Borrowings under the revolving credit facility bear interest at a variable rate based on Prime Lending Rate or LIBOR Rate at the option of the Company. For Prime Lending Rate loans, the interest rate is equal to the highest of (i) the Federal Funds Rate plus a margin of 0.50%, (ii) the rate last quoted by The Wall Street Journal as the “Prime Rate,” or (iii) the sum of a LIBOR rate plus 1.00%, plus a margin of 2.25%. For LIBOR rate loans, the interest rate is equal to a LIBOR rate plus a margin of 3.25%. Borrowings under the revolving credit facility are therefore subject to risk based upon prevailing market interest rates. Interest rate risk may result from many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control. During the year ended December 31, 2015, the maximum amount borrowed under the revolving credit facility was $25.0 million and the average amount of borrowings outstanding was $7.7 million. As of December 31, 2015, the amount of total borrowings outstanding under the revolving credit facility was nil. If the prevailing market interest rates relative to these borrowings increased by 10%, our interest expense during the period ended December 31, 2015 would have increased by less than $0.1 million.

Foreign Currency Risk

We have wholly-owned subsidiaries in Hong Kong, China, the United Kingdom, France, Spain and Canada. Sales are generally made by these operations on FOB China or Hong Kong terms and are denominated in U.S. dollars. However, purchases of inventory and Hong Kong operating expenses are typically denominated in Hong Kong dollars and local operating expenses in China are denominated in local currency, thereby creating exposure to changes in exchange rates. Changes in the Chinese Yuan or Hong Kong dollar/U.S. dollar exchange rates may positively or negatively affect our gross margins, operating income and retained earnings. The exchange rate of the Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government since 1983 at HK$7.80 to US$1.00 and, accordingly, has not represented a currency exchange risk to the U.S. dollar. Our mainland China operations are funded in Chinese Yuan. We do not believe that near-term changes in these exchange rates, if any, will result in a material effect on our future earnings, fair values or cash flows. Therefore, we have chosen not to enter into foreign currency hedging transactions. We cannot assure you that this approach will be successful, especially in the event of a significant and sudden change in the value of the Hong Kong dollar or Chinese Yuan.

36

Item 8.  Consolidated Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

JAKKS Pacific, Inc.

Santa Monica, California

We have audited the accompanying consolidated balance sheets of JAKKS Pacific, Inc. ("Company") as of December 31, 2014 and 2015 and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule (Schedule II) listed in the accompanying index. These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of JAKKS Pacific, Inc. at December 31, 2014 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), JAKKS Pacific, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2016 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

BDO USA, LLP

Los Angeles, California

March 15, 2016

37

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2014		2015
	(In thousands, except
	share data)
Assets
Current assets
Cash and cash equivalents	$	71,525	$	102,528
Marketable securities		220		—
Accounts receivable, net of allowance for uncollectible accounts of $3,264 and $2,714 in 2014 and 2015, respectively		234,516		163,387
Inventory, net		78,827		60,544
Income tax receivable		24,008		24,008
Deferred income taxes		3,358		—
Prepaid expenses and other		25,139		31,901
Total current assets		437,593		382,368
Property and equipment
Office furniture and equipment		14,440		15,141
Molds and tooling		87,360		86,307
Leasehold improvements		5,280		10,640
Total		107,080		112,088
Less accumulated depreciation and amortization		95,984		93,653
Property and equipment, net		11,096		18,435
Deferred tax asset		—		446
Intangibles, net		48,904		42,185
Other long term assets		10,389		8,959
Investment in DreamPlay LLC		7,000		7,000
Goodwill, net		44,492		44,199
Trademarks, net		2,308		2,308
Total assets	$	561,782	$	505,900
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	56,113	$	34,986
Accrued expenses		86,974		54,081
Reserve for sales returns and allowances		24,477		17,267
Income taxes payable		23,784		21,067
Deferred income taxes		—		2,739
Total current liabilities		191,348		130,140
Convertible senior notes, net		215,000		215,000
Other liabilities		1,874		5,155
Income taxes payable		2,496		2,199
Deferred income taxes		5,980		—
Total liabilities		416,698		352,494
Commitments and Contingencies
Stockholders’ equity
Preferred shares, $.001 par value; 5,000,000 shares authorized; nil outstanding		—		—
Common stock, $.001 par value; 100,000,000 shares authorized; 22,682,295 and 21,153,878 shares issued and outstanding in 2014 and 2015, respectively		23		21
Treasury stock at cost; 3,112,840 and 3,660,201 shares in 2014 and 2015, respectively		(24,000)		(28,322)
Additional paid-in capital		202,051		194,743
Accumulated deficit		(26,645)		(3,391	)
Accumulated other comprehensive loss		(6,835)		(10,051	)
Total JAKKS Pacific, Inc.’s stockholders’ equity		144,594		153,000
Non-controlling interests		490		406
Total stockholders’ equity		145,084		153,406
Total liabilities and stockholders’ equity	$	561,782	$	505,900

See accompanying notes to consolidated financial statements.

38

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2013			2014		2015
	(In thousands, except per share amounts)
Net sales	$	632,925		$	810,060	$	745,741
Cost of sales		477,146			574,253		517,172
Gross profit		155,779			235,807		228,569
Selling, general and administrative expenses		200,311			204,480		198,039
Income (loss) from operations		(44,532	)		31,327		30,530
Change in fair value of business combination liability		6,000			5,932		5,642
Profit from video game joint venture		—			—		2,701
Income (loss) from joint ventures		(3,148	)		314		60
Interest income		327			112		62
Interest expense		(9,942	)		(12,461)		(12,402	)
Income (loss) before provision for income taxes		(51,295	)		25,224		26,593
Provision for income taxes		2,611			3,715		3,423
Net income (loss)		(53,906	)		21,509		23,170
Net loss attributable to non-controlling interests		—			—		(84	)
Net income (loss) attributable to JAKKS Pacific, Inc.	$	(53,906	)	$	21,509	$	23,254
Basic earnings (loss) per share	$	(2.43	)	$	1.03	$	1.20
Basic weighted number of shares		22,200			20,948		19,435
Diluted earnings (loss) per share	$	(2.43	)	$	0.70	$	0.71
Diluted weighted number of shares		22,200			41,516		43,321

See accompanying notes to consolidated financial statements.

39

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Years Ended December 31,
	2013			2014			2015
	(In thousands)
Net income (loss)	$	(53,906	)	$	21,509		$	23,170
Other comprehensive income (loss):
Foreign currency translation adjustment		366			(2,986	)		(3,216	)
Comprehensive income (loss)		(53,540	)		18,523			19,954
Less: Comprehensive loss attributable to non-controlling interests		—			—			(84	)
Comprehensive income (loss) attributable to JAKKS Pacific, Inc.	$	(53,540	)	$	18,523		$	20,038

See accompanying notes to consolidated financial statements.

40

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015

(In thousands)

	Common Stock												Retained			Accumulated			JAKKS
										Additional			Earnings			Other			Pacific Inc.’s			Non-			Total
	Number						Treasury			Paid-in			(Accumulated			Comprehensive			Stockholders’			Controlling			Stockholders’
	of Shares			Amount			Stock			Capital			Deficit)			Income (Loss)			Equity			Interests			Equity
Balance, December 31, 2012		21,969		$	22		$	―		$	202,577		$	8,836		$	(4,215	)	$	207,220		$	―		$	207,220
Excess tax deficiency on stock options		―			―			―			(160	)		―			―			(160	)		―			(160	)
Restricted stock grants		707			1			―			1,084			―			―			1,085			―			1,085
Dividends declared		―			―			―			―			(3,084	)		―			(3,084	)		―			(3,084	)
Retirement of restricted stock		(7	)		―			―			(34	)		―			―			(34	)		―			(34	)
Repurchase of equity component of convertible notes		―			―			―			(2,802	)		―			―			(2,802	)		―			(2,802	)
Net loss		―			―			―			―			(53,906	)		―			(53,906	)		―			(53,906	)
Foreign currency translation adjustment		―			―			―			―			―			366			366			―			366
Balance, December 31, 2013		22,669			23			―			200,665			(48,154	)		(3,849	)		148,685			―			148,685
Excess tax deficiency on vesting of restricted stock		―			―			―			(85	)		―			―			(85	)		―			(85	)
Restricted stock grants		65			1			―			1,472			―			―			1,473			―			1,473
Retirement of restricted stock		(52	)		(1	)		―			(1	)		―			―			(2	)		―			(2	)
Prepaid forward purchase contract		―			―			(24,000	)		—			―			―			(24,000	)		―			(24,000	)
Contributions from non-controlling interests		―			―			—			―			―			―			―			490			490
Net income		―			―			—			―			21,509			―			21,509			―			21,509
Foreign currency translation adjustment		―			―			—			―			—			(2,986	)		(2,986	)		―			(2,986	)
Balance, December 31, 2014		22,682			23			(24,000	)		202,051			(26,645	)		(6,835	)		144,594			490			145,084
Restricted stock grants		71			1			—			1,561			—			—			1,562			—			1,562
Retirement of restricted stock		(52	)		(1	)		—			—			—			—			(1	)		—			(1	)
Repurchase of common stock		(1,547	)		(1	)		(13,192	)		—			—			—			(13,193	)		—			(13,193	)
Retirement of treasury stock		—			(1	)		8,870			(8,869	)		—			—			―			—			―
Net income		—			—			—			—			23,254			—			23,254			(84	)		23,170
Foreign currency translation adjustment		—			—			—			—			—			(3,216	)		(3,216	)		—			(3,216	)
Balance, December 31, 2015		21,154		$	21		$	(28,322	)	$	194,743		$	(3,391	)	$	(10,051	)	$	153,000		$	406		$	153,406

 See accompanying notes to consolidated financial statements.

41

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2013			2014			2015
	(In thousands)
Cash flows from operating activities
Net income (loss)	$	(53,906	)	$	21,509		$	23,170
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		24,599			21,883			20,902
Share-based compensation expense		1,085			1,473			1,562
Loss on disposal of property and equipment		3,060			18			47
Change in fair value of business combination liability		(6,000	)		(5,932	)		(5,642	)
Gain on extinguishment of convertible notes		(84	)		—			—
(Income) loss from joint ventures		3,148			(314	)		(1,017	)
Deferred income taxes		(129	)		(371	)		(329	)
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		4,232			(133,293	)		71,129
Inventory		12,906			(32,043	)		18,283
Prepaid expenses and other		(6,367	)		2,534			(7,513	)
Accounts payable		(12,518	)		30,838			(21,127	)
Accrued expenses		16,283			23,820			(26,234	)
Income taxes payable		5,750			2,921			(3,014	)
Reserve for sales returns and allowances		(2,999	)		(6,897	)		(7,210	)
Other liabilities		(11,324	)		(5,147	)		3,281
Excess tax deficiency from share-based compensation		(160	)		(85	)		—
Total adjustments		31,482			(100,595	)		43,118
Net cash provided by (used in) operating activities		(22,424	)		(79,086	)		66,288
Cash flows from investing activities
Purchases of property and equipment		(10,129	)		(10,453	)		(18,327	)
Change in other assets		(135	)		(2,766	)		(4,149	)
Contributions to joint venture		(1,636	)		—			—
Distributions from joint venture		1,149			332			60
(Purchases) sale of marketable securities		(2	)		—			220
Net cash used in investing activities		(10,753	)		(12,887	)		(22,196	)
Cash flows from financing activities
Common stock surrendered		(34	)		(2	)		(1	)
Common stock repurchased		—			(24,000	)		(13,193	)
Proceeds from (repayment of) credit facility borrowings		(70,710	)		—			—
Credit facility costs		—			(1,851	)		(188	)
Dividends paid		(3,084	)		—			—
Proceeds from issuance of convertible notes		100,000			115,000			—
Bank fees related to convertible notes		(4,179	)		(4,594	)		—
Retirement of senior convertible notes		(61,000	)		(39,000	)		—
Proceeds from issuance of common shares of non-controlling interests		—			490			—
Net cash provided by (used in) financing activities		(39,007	)		46,043			(13,382	)
Net increase (decrease) in cash and cash equivalents		(72,184	)		(45,930	)		30,710
Effect of foreign currency translation		(66	)		384			293
Cash and cash equivalents, beginning of year		189,321			117,071			71,525
Cash and cash equivalents, end of year	$	117,071		$	71,525		$	102,528
Cash paid (refunded) during the period for:
Interest	$	4,408		$	8,964		$	10,198
Income taxes	$	(4,644	)	$	945		$	7,832

See Notes 4, 5 and 19 for additional supplemental information to consolidated statements of cash flows.

See accompanying notes to consolidated financial statements.

42

JAKKS PACIFIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

Note 1—Principal Industry

JAKKS Pacific, Inc. (the “Company”) is engaged in the development, production and marketing of consumer products, including toys and related products, electronic products, pet toys and related products, and other consumer products, many of which are based on highly-recognized character and entertainment licenses. The Company commenced its primary business operations in July 1995 through the purchase of substantially all of the assets of a Hong Kong toy company. The Company markets its product lines domestically and internationally.

The Company was incorporated under the laws of the State of Delaware in January 1995.

Note 2—Summary of Significant Accounting Policies

Principles of consolidation

These consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and its majority owned joint venture. All intercompany transactions have been eliminated.

The Company entered into a joint venture with Meisheng Culture & Creative Corp., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed upon territories of the People’s Republic of China. The joint venture will include a subsidiary in the Shanghai Free Trade Zone that is expected to sell, distribute and market these products, which can include dolls, plush, role play products, action figures, costumes, seasonal items, technology and app-enhanced toys and many more, based on top entertainment licenses and JAKKS’ own proprietary brands. The Company owns fifty-one percent of the joint venture.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less, when acquired, to be cash equivalents. The Company maintains its cash in bank deposits which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk of cash and cash equivalents.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.

Accounts Receivable and Allowance for Doubtful Accounts

Credit is granted to customers on an unsecured basis. Credit limits and payment terms are established based on extensive evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash generation, financing availability, and liquidity status of each customer. Customers are reviewed at least annually, with more frequent reviews performed as necessary, depending upon the customer’s financial condition and the level of credit being extended. For customers who are experiencing financial difficulties, management performs additional financial analyses before shipping to those customers on credit. The Company uses a variety of financial arrangements to ensure collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.

The Company records an allowance for doubtful accounts based upon management’s assessment of the business environment, customers’ financial condition, historical collection experience, accounts receivable aging, customer disputes, and the collectability of specific customer accounts.

43

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual future results could differ from those estimates.

Revenue recognition

Revenue is recognized upon the shipment of goods to customers or their agents, depending upon terms, provided there are no uncertainties regarding customer acceptance, the sales price is fixed or determinable and collectability is reasonably assured.

Generally the Company does not allow product returns. It provides its customers a negotiated allowance for breakage or defects, which is recorded when the related revenue is recognized. However, the Company does make occasional exceptions to this policy and consequently accrues a return allowance based upon historic return amounts and management estimates. The Company occasionally grants credits to facilitate markdowns and sales of slow moving merchandise. These credits are recorded as a reduction of gross sales at the time of the sale.

The Company’s reserve for sales returns and allowances decreased by $7.2 million from $24.5 million as of December 31, 2014 to $17.3 million as of December 31, 2015. This decrease was primarily due to certain customers taking their year-end allowances related to 2014 and 2015 during 2015, as well as reduced markdown allowances in 2015.

44

Fair value measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based upon these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2:	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3:	Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 31 (in thousands):

			Fair Value Measurements
	Carrying Amount as of		As of December 31, 2014
	December 31, 2014		Level 1		Level 2		Level 3
Cash equivalents	$	12,166	$	12,166	$	—	$	—
Marketable securities		220		220		—		—
	$	12,386	$	12,386	$	—	$	—

			Fair Value Measurements
	Carrying Amount as of		As of December 31, 2015
	December 31, 2015		Level 1		Level 2		Level 3
Cash equivalents	$	13,218	$	13,218	$	—	$	—
Marketable securities		—		—		—		—
	$	13,218	$	13,218	$	—	$	—

The Company’s accounts receivable, accounts payable and accrued expenses represent financial instruments. The carrying value of these financial instruments is a reasonable approximation of fair value.

The fair value of the 4.25% convertible senior notes payable due 2018 as of December 31, 2014 and 2015 was $96.3 million and $102.0 million respectively, based upon the most recent quoted market prices, and the fair value of the 4.875% convertible senior notes payable due 2020 as of December 31, 2014 and 2015 was $100.9 million and $112.3 million, respectively, based upon the most recent quoted market prices. The fair values of the convertible senior notes are considered to be Level 2 measurements on the fair value hierarchy.

For the years ended December 31, 2014 and 2015, there was no impairment to the value of the Company’s non-financial assets.

45

Inventory

Inventory, which includes the ex-factory cost of goods, capitalized warehouse costs and in-bound freight and duty, is valued at the lower of cost (first-in, first-out) or market, net of inventory obsolescence reserve, and consists of the following (in thousands):

	December 31,
	2014		2015
Raw materials	$	1,040	$	3,717
Finished goods		77,787		56,827
	$	78,827	$	60,544

Property and equipment

Property and equipment are stated at cost and are being depreciated using the straight-line method over their estimated useful lives as follows:

Office equipment	5 years
Automobiles	5 years
Furniture and fixtures	5 - 7 years
Leasehold improvements	Shorter of length of lease or 10 years

The Company uses the usage method as its depreciation methodology for molds and tools used in the manufacturing of its products, which is more closely correlated to production of goods. The Company believes that the usage method more accurately matches costs with revenues. Furthermore, the useful estimated life of molds and tools is two years.

For the years ended December 31, 2013, 2014, and 2015, the Company’s aggregate depreciation expense related to property and equipment was $11.8 million, $10.4 million, and $10.9 million, respectively.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes all changes in equity from non-owner sources. The Company accounts for other comprehensive income in accordance with Accounting Standards Codification (“ASC”) ASC 220, “Comprehensive Income.” All the activity in other comprehensive income (loss) and all amounts in accumulated other comprehensive income (loss) relate to foreign currency translation adjustments. 

46

Advertising

Production costs of commercials and programming are charged to operations in the period during which the production is first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the period incurred. Advertising expense for the years ended December 31, 2013, 2014 and 2015, was approximately $10.1 million, $19.3 million, and $15.8 million, respectively.

The Company also participates in cooperative advertising arrangements with certain customers, whereby it allows a discount from invoiced product amounts in exchange for customer purchased advertising that features the Company’s products. Typically, these discounts range from 1% to 6% of gross sales, and are generally based upon product purchases or specific advertising campaigns. Such amounts are accrued when the related revenue is recognized or when the advertising campaign is initiated. These cooperative advertising arrangements are accounted for as direct selling expenses.

Income taxes

The Company does not file a consolidated return with its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective jurisdictions. Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized as deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Foreign Currency Translation Exposure

The Company’s reporting currency is the US dollar. The translation of its net investment in subsidiaries with non-US dollar functional currencies subjects the Company to currency exchange rate fluctuations in its results of operations and financial position. Assets and liabilities of subsidiaries with non-US dollar functional currencies are translated into US dollars at year-end exchange rates. Income, expense, and cash flow items are translated at average exchange rates prevailing during the year. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss/gain within stockholders’ equity. The Company’s primary currency translation exposures in 2013, 2014 and 2015 were related to its net investment in entities having functional currencies denominated in the Hong Kong dollar.

Foreign Currency Transaction Exposure

Currency exchange rate fluctuations may impact the Company’s results of operations and cash flows. The Company’s currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable functional currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating activities are recorded in the components of operating income in the consolidated statement of operations. Inventory purchase transactions denominated in the Hong Kong dollar were the primary transactions that caused foreign currency transaction exposure for the Company in 2013, 2014 and 2015.

Accounting for the impairment of finite-lived tangible and intangible assets

Long-lived assets with finite lives, which include property and equipment and intangible assets other than goodwill, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. Finite-lived intangible assets consist primarily of product technology rights, acquired backlog, customer relationships, product lines and license agreements. These intangible assets are amortized over the estimated economic lives of the related assets. There were no impairments for years ended December 31, 2013, 2014 and 2015.

47

Goodwill and other indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment at least annually at the reporting unit level. Losses in value are recorded when material impairment has occurred in the underlying assets or when the benefits of the identified intangible assets are realized. Indefinite-lived intangible assets other than goodwill consist of trademarks.

The carrying value of goodwill and trademarks are based upon cost, which is subject to management’s current assessment of fair value. Management evaluates fair value recoverability using both objective and subjective factors. Objective factors include cash flows and analysis of recent sales and earnings trends. Subjective factors include management’s best estimates of projected future earnings and competitive analysis and the Company’s strategic focus.

For the years ended December 31, 2013, 2014 and 2015, there was no impairment to the value of the Company's goodwill or trademarks.

Share-based Compensation

The Company measures all employee share-based compensation awards using a fair value method and records such expense in its consolidated financial statements. The Company recorded $1.1 million, $1.5 million, and $1.6 million of restricted stock expense, in 2013, 2014, and 2015, respectively. See Note 17 for further details relating to share based compensation.

48

Earnings per share

The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted earnings per share (“EPS”) for the periods presented (in thousands, except per share data): 

	2013
				Weighted
				Average
	Loss			Shares		Per Share
Basic EPS
Loss available to common stockholders	$	(53,906	)		22,200	$	(2.43	)
Effect of dilutive securities:
Assumed conversion of convertible senior notes		—			—
Options and warrants		—			—
Unvested restricted stock grants		—			—
Diluted EPS
Loss available to common stockholders plus assumed exercises and conversion	$	(53,906	)		22,200	$	(2.43	)

	2014
			Weighted
			Average
	Income		Shares		Per Share
Basic EPS
Income available to common stockholders	$	21,509		20,948	$	1.03
Effect of dilutive securities:
Assumed conversion of convertible senior notes		7,345		20,388
Options and warrants		—		—
Unvested restricted stock grants		—		180
Diluted EPS
Income available to common stockholders plus assumed exercises and conversion	$	28,854		41,516	$	0.70

	2015
			Weighted
			Average
	Income		Shares		Per Share
Basic EPS
Income available to common stockholders	$	23,254		19,435	$	1.20
Effect of dilutive securities:
Assumed conversion of convertible senior notes		7,385		23,369
Options and warrants		—		—
Unvested performance stock grants		—		347
Unvested restricted stock grants		—		170
Diluted EPS
Income available to common stockholders plus assumed exercises and conversion	$	30,639		43,321	$	0.71

Basic earnings per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of warrants, options and convertible debt to the extent they are dilutive). For the years ended December 31, 2013, 2014 and 2015, the convertible notes interest and related common share equivalent of 10,037,523, nil and nil, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive. Potentially dilutive stock options and warrants of 1,627,144, 1,601,272 and 1,518,596 for the years ended December 31, 2013, 2014, and 2015, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive. Potentially dilutive restricted stock of 111,195, nil and nil for the years ended December 31, 2013, 2014 and 2015, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive.

The Company is also party to a prepaid forward contract to purchase 3,112,840 shares of its common stock that are to be delivered over a settlement period in 2020. The number of shares to be delivered under the prepaid forward contract has been removed from the weighted-average basic and diluted shares outstanding. Any dividends declared and paid on the shares underlying the forward contract are to be reverted back to the Company based on the contractual terms of the forward contract.

49

Debt with Conversion and Other Options

In July 2013, the Company sold an aggregate of $100.0 million principal amount of 4.25% Convertible Senior Notes due 2018 (the “2018 Notes”). The 2018 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on August 1 and February 1 of each year at a rate of 4.25% per annum and will mature on August 1, 2018. The initial conversion rate for the 2018 Notes will be 114.3674 shares of the Company’s common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $8.74 per share of common stock, subject to adjustment in certain events. Holders of the 2018 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2018 Notes will be settled in shares of the Company’s common stock.

In June 2014, the Company sold an aggregate of $115.0 million principal amount of 4.875% Convertible Senior Notes due 2020 (the “2020 Notes”). The 2020 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on June 1 and December 1 of each year at a rate of 4.875% per annum and will mature on June 1, 2020. The initial conversion rate for the 2020 Notes will be 103.7613 shares of our common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $9.64 per share of common stock, subject to adjustment in certain events. Holders of the 2020 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2020 Notes will be settled in shares of the Company’s common stock. The Company received net proceeds of approximately $110.4 million from the offering of which $24.0 million was used to repurchase 3.1 million shares of the Company’s common stock under a prepaid forward purchase contract. In January 2016 the Company repurchased $2.0 million of the 2020 Notes.

In June 2014, the Company effectively repurchased 3,112,840 shares of its common stock at an average cost of $7.71 per share for an aggregate amount of $24.0 million pursuant to a prepaid forward share repurchase agreement entered into with Merrill Lynch International (“ML”). These repurchased shares are treated as retired for basic and diluted EPS purposes although they remain legally outstanding. The Company reflects the aggregate purchase price of its common shares repurchased as a reduction to stockholders’ equity allocated to treasury stock. Any dividends declared and paid on the shares underlying the forward contract are to be reverted back to the Company based on the contractual terms of the forward contract.

Reclassifications

Certain reclassifications were made to the prior year consolidated financial statements to conform to current year presentation.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and has not yet determined the method by which we will adopt the standard in 2018.

In August 2014, the FASB amended the FASB Accounting Standards Codification and amended Subtopic 205-40, “Presentation of Financial Statements — Going Concern.” This amendment prescribes that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting periods beginning January 1, 2017. Upon adoption the Company will use this guidance to evaluate going concern.

In April 2015, the FASB issued Accounting Standards Update 2015-03, “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendment will be effective for our annual and interim reporting periods beginning January 1, 2016 and should be applied on a retrospective basis. The adoption of ASU 2015-03 will not have any impact on our results of operations, but will result in debt issuance costs being presented as a direct reduction from the carrying amount of debt liabilities.

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires inventory accounted for under the FIFO or average cost method to be measured using the lower of cost and net realizable value. The amendments are effective prospectively for fiscal years and for interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of the pending adoption of ASU 2015-11 on the consolidated financial statements.

In August 2015, the FASB issued Accounting Standards Update 2015-15, “Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”). ASU 2015-15 codifies an SEC staff announcement that entities are permitted to defer and present debt issuance costs related to line-of-credit arrangements as assets. The announcements were effective upon issuance. The adoption of ASU 2015-15 does not have any impact on The Company’s consolidated financial statements.

In November 2015, the FASB issued Accounting Standards Update. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU 2015-17 will have on its financial position or financial statement disclosures.

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of this new standard on its financial statements. 

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Note 3—Business Segments, Geographic Data, Sales by Product Group and Major Customers

The Company is a worldwide producer and marketer of children’s toys and other consumer products, principally engaged in the design, development, production, marketing and distribution of its diverse portfolio. The Company’s reportable segments are Traditional Toys and Electronics, and Role Play, Novelty and Seasonal Toys, each of which includes worldwide sales.

The Traditional Toys and Electronics segment includes action figures, vehicles, playsets, plush products, dolls, accessories, electronic products, construction toys, infant and pre-school toys, foot to floor ride-on vehicles, wagons and pet products and related products.

The Role Play, Novelty and Seasonal segment includes role play and dress-up products, novelty toys, seasonal and outdoor products, indoor and outdoor kids’ furniture and Halloween and everyday costume play.

Segment performance is measured at the operating income level. All sales are made to external customers and general corporate expenses have been attributed to the various segments based upon sales volumes. Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances, goodwill, molds and tooling and other assets.

Results are not necessarily those that would be achieved were each segment an unaffiliated business enterprise. Information by segment and a reconciliation to reported amounts as of December 31, 2014 and 2015 and for the three years in the period ended December 31, 2015 are as follows (in thousands):

	Years Ended December 31,
	2013		2014		2015
Net Sales
Traditional Toys and Electronics	$	320,565	$	408,426	$	437,683
Role Play, Novelty and Seasonal Toys		312,360		401,634		308,058
	$	632,925	$	810,060	$	745,741

	Years Ended December 31,
	2013			2014		2015
Operating Income (Loss)
Traditional Toys and Electronics	$	(25,286	)	$	10,654	$	13,588
Role Play, Novelty and Seasonal Toys		(19,246	)		20,673		16,942
	$	(44,532	)	$	31,327	$	30,530

	Years Ended December 31,
	2013		2014		2015
Depreciation and Amortization Expense
Traditional Toys and Electronics	$	12,475	$	11,159	$	10,911
Role Play, Novelty and Seasonal Toys		8,939		7,812		7,949
	$	21,414	$	18,971	$	18,860

	December 31,
	2014		2015
Assets
Traditional Toys and Electronics	$	313,380	$	326,199
Role Play, Novelty and Seasonal Toys		248,402		179,701
	$	561,782	$	505,900

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Information regarding the Company’s operations in different geographical areas is presented below on the basis the Company uses to manage its business. Net revenues are categorized based upon location of the customer, while long-lived assets are categorized based upon the location of the Company’s assets. Tools, dies and molds represent a substantial portion of the long-lived assets included in the United States with a net book value of $8.8 million in 2014 and $10.2 million in 2015 and substantially all of these assets are located in China. The following tables present information about the Company by geographic area as of December 31, 2014 and 2015 and for each of the three years in the period ended December 31, 2015 (in thousands):

	December 31,
	2014		2015
Long-lived Assets
China	$	8,816	$	10,172
United States		1,689		7,702
Hong Kong		591		561
	$	11,096	$	18,435

	Years Ended December 31,
	2013		2014		2015
Net Sales by Geographic Area
United States	$	524,193	$	653,497	$	542,101
Europe		48,585		67,027		117,313
Canada		25,125		33,040		32,587
Hong Kong		6,721		2,746		1,675
Other		28,301		53,750		52,065
	$	632,925	$	810,060	$	745,741

Major Customers

Net sales to major customers were as follows (in thousands, except for percentages):

	2013					2014					2015
			Percentage of					Percentage of					Percentage of
	Amount		Net Sales			Amount		Net Sales			Amount		Net Sales
Wal-Mart	$	135,223		21.4	%	$	165,777		20.5	%	$	163,333		21.9	%
Target		98,770		15.6			124,257		15.3			96,766		13.0
Toys ‘R’ Us		68,074		10.8			93,926		11.6			71,150		9.5
	$	302,067		47.8	%	$	383,960		47.4	%	$	331,249		44.4	%

No other customer accounted for more than 10% of the Company’s total net sales.

As of December 31, 2014 and 2015, the Company’s three largest customers accounted for approximately 29.8% and 56.2%, respectively, of net accounts receivable. The concentration of the Company’s business with a relatively small number of customers may expose the Company to material adverse effects if one or more of its large customers were to experience financial difficulty. The Company performs ongoing credit evaluations of its top customers and maintains an allowance for potential credit losses.

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Note 4—Joint Ventures

The Company owns a fifty percent interest in a joint venture (“Pacific Animation Partners”) with the U.S. entertainment subsidiary of a leading Japanese advertising and animation production company. The joint venture was created to develop and produce a boys’ animated television show, which it licensed worldwide for television broadcast as well as consumer products. The Company produced toys based upon the television program under a license from the joint venture which also licensed certain other merchandising rights to third parties. The Company is responsible for fifty percent of the operating expenses of the joint venture. The Company’s investment is being accounted for using the equity method. The joint venture completed and delivered 65 episodes of the show, which began airing in February 2012, and has since ceased production of the television show. For the years ended December 31, 2013, 2014 and 2015, the Company recognized a loss from the joint venture of $3.1 million, a gain of $0.3 million and a gain of $0.1 million, respectively, including producer fees and royalty income from the joint venture in the amount of $0.3 million, $0.2 million and nil, respectively.

As of December 31, 2014 and 2015, the balance of the investment in the Pacific Animation Partners joint venture includes the following components (in thousands):

	December 31,			December 31,
	2014			2015
Capital contributions	$	3,856		$	—
Equity in cumulative net loss		(3,856	)		—
Investment in joint venture	$	—		$	—

In September 2012, the Company entered into a joint venture (“DreamPlay Toys”) with NantWorks LLC (“NantWorks”) in which it owns a fifty percent interest. Pursuant to the operating agreement of DreamPlay Toys, the Company paid to NantWorks cash in the amount of $8.0 million and issued NantWorks a warrant to purchase 1.5 million shares of the Company’s common stock at a value of $7.0 million in exchange for the exclusive right to arrange for the provision of the NantWorks recognition technology platform for toy products. The Company has classified these rights as an intangible asset, which are being amortized over the anticipated revenue stream from the exploitation of these rights. The joint venture entered into a Toy Services Agreement, as amended, with a current expiration date of October 1, 2018, to develop and produce toys utilizing recognition technologies owned by NantWorks. Pursuant to the terms of the amended Toy Services Agreement, NantWorks is entitled to receive a renewal fee of $0.4 million per year and a minimum annual preferred return in the amount of $0.5 million based upon net sales of DreamPlay Toys product sales and third-party license fees. The Company retains the financial risk of the joint venture and is responsible for the day-to-day operations, including development, sales and distribution, for which it is entitled to receive any remaining profit or is responsible for any losses. The results of operations of the joint venture are consolidated with the Company’s results. Sales of DreamPlay Toys products commenced in the third quarter of 2013.

In addition, in 2012, the Company invested $7.0 million in cash in exchange for a five percent economic interest in a related entity, DreamPlay LLC, which will exploit the recognition technologies in non-toy consumer product categories. NantWorks has the right to repurchase the Company’s interest for $7.0 million. The Company has classified this investment as a long term asset on its balance sheet. The Company’s investment is being accounted for using the cost method. As of December 31, 2015, the Company determined the value of this investment will be realized and that no impairment has occurred.

In November 2014, the Company entered into a joint venture with Meisheng Culture & Creative Corp., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed-upon territories of the People’s Republic of China. The joint venture will include a subsidiary in the Shanghai Free Trade Zone that is expected to sell, distribute and market these products, which can include dolls, plush, role play products, action figures, costumes, seasonal items, technology and app-enhanced toys and many more, based on top entertainment licenses and JAKKS’ own proprietary brands. The Company owns fifty-one percent of the joint venture. The results of operations of the joint venture are consolidated with the Company's results. Only minimal expenses were incurred in 2014 and the non-controlling interest’s share of the losses from the joint venture for the year ended December 31, 2014 and 2015 was nominal and $84,000, respectively.

Note 5—Business Combinations

The Company acquired the following entities to further enhance its existing product lines and to continue diversification into other toy categories and seasonal businesses:

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In July 2012, the Company acquired all of the stock of Maui, Inc., an Ohio corporation, Kessler Services, Inc., a Nevada corporation, and A.S. Design Limited, a Hong Kong corporation (collectively, “Maui”). The cash consideration totaled $36.2 million. In addition, the Company agreed to pay an earn-out of up to an aggregate amount of $18.0 million in cash over the three calendar years following the acquisition based upon the achievement of certain financial performance criteria, which was accrued and recorded as goodwill as of December 31, 2012. In 2013, 2014 and 2015, Maui did not achieve the minimum prescribed earn-out targets, therefore the reversals of the earn-out of $6.0 million, $5.9 million and $5.6 million, respectively, was recorded as other income. Maui is a leading manufacturer and distributor of spring and summer activity toys and impulse toys and was included in the Company’s results of operations from the date of acquisition.

In September 2012, the Company acquired all of the stock of JKID, LTD., a United Kingdom corporation for an initial cash consideration of $1.1 million and deferred cash payments of $5.5 million payable in five semi-annual payments of $1.1 million each. In addition, the Company agreed to pay additional compensation of up to an aggregate amount of $4.4 million in cash over the two year period of 2015 through 2016, based upon the achievement of certain financial performance criteria, which will be accrued and charged to expense when and if it is earned. JKID is the developer of augmented reality technology that enhances the play patterns of toys and consumer products.

Note 6—Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2015 are as follows (in thousands):

	Traditional Toys and Electronics			Role Play, Novelty and Seasonal Toys		Total
Balance, January 1, 2014:
Goodwill	$	25,265		$	19,611	$	44,876
Adjustments to goodwill for foreign currency translation		(384	)		—		(384	)
Balance December 31, 2014:	$	24,881		$	19,611	$	44,492
Balance, January 1, 2015:
Goodwill	$	24,881		$	19,611	$	44,492
Adjustments to goodwill for foreign currency translation		(293	)		—		(293	)
Balance December 31, 2015:	$	24,588		$	19,611	$	44,199

The Company assesses goodwill and indefinite-lived intangible assets for impairment on an annual basis by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its business climate or as a result of other triggering events that take place. If carrying value exceeds fair value, a possible impairment exists and further evaluation is performed.

The Company assessed its goodwill for impairment as of October 1, 2015 for each of its reporting units by evaluating qualitative factors, including, but not limited to, the performance of each reporting unit, general economic conditions, access to capital, the industry and competitive environment, the interest rate environment. The Company prepared step-one of its impairment model. The valuation of goodwill involves a high degree of judgment and uncertainty related to key assumptions. Due to the subjective nature of the impairment analysis, significant changes in the assumptions used to develop the estimate could materially affect the conclusion regarding the future cash flows necessary to support the valuation of goodwill.

Based on the Company’s assessment, it determined that the fair value of its reporting units were not less than the carrying amounts. As such, the Company determined there was no impairment to be recorded.

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Note 7—Intangible Assets Other Than Goodwill

Intangible assets other than goodwill consist primarily of licenses, product lines, customer relationships and trademarks. Amortized intangible assets are included in intangibles in the accompanying balance sheets. Trademarks are disclosed separately in the accompanying balance sheets. Debt offering costs from the issuance of the Company’s convertible senior notes are included in other long term assets in the accompanying balance sheets. Intangible assets and debt issuance costs are as follows (in thousands, except for weighted useful lives):

			December 31, 2014							December 31, 2015
	Weighted Useful Lives		Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
	(Years)
Amortized Intangible Assets:
Licenses		4.96	$	91,488	$	(85,113	)	$	6,375	$	91,488	$	(86,994	)	$	4,494
Product lines		5.74		66,594		(27,235	)		39,359		67,794		(32,077	)		35,717
Customer relationships		5.21		9,348		(7,831	)		1,517		9,348		(8,391	)		957
Trade names		5.00		3,000		(1,450	)		1,550		3,000		(2,050	)		950
Non-compete/ Employment contracts		3.90		3,333		(3,230	)		103		3,333		(3,266	)		67
Total amortized intangible assets				173,763		(124,859	)		48,904		174,963		(132,778	)		42,185
Deferred Costs:
Debt issuance costs		3.77		14,923		(6,418	)		8,505		11,433		(4,782	)		6,651
Unamortized Intangible Assets:
Trademarks				2,308		―			2,308		2,308		―			2,308
			$	190,994	$	(131,277	)	$	59,717	$	188,704	$	(137,560	)	$	51,144

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For the years ended December 31, 2013, 2014, and 2015, the Company’s aggregate amortization expense related to intangible assets and deferred costs was $10.6 million, $10.5 million, and $10.0 million, respectively. The Company currently estimates continuing future amortization expense to be approximately (in thousands):

2016	$	11,780
2017		10,589
2018		7,667
2019		5,255
2020		4,592
Thereafter		8,953
	$	48,836

Note 8—Concentration of Credit Risk

Financial instruments that subject the Company to concentration of credit risk are cash and cash equivalents and accounts receivable. Cash equivalents consist principally of short-term money market funds. These instruments are short-term in nature and bear minimal risk. To date, the Company has not experienced losses on these instruments.

The Company performs ongoing credit evaluations of its customers’ financial conditions, but does not require collateral to support domestic customer accounts receivable. Most goods shipped FOB Hong Kong or China are secured with irrevocable letters of credit.

As of December 31, 2014 and 2015, the Company’s three largest customers accounted for approximately 29.8% and 56.2%, respectively, of net accounts receivable. The concentration of the Company’s business with a relatively small number of customers may expose the Company to material adverse effects if one or more of its large customers were to experience financial difficulty. The Company performs ongoing credit evaluations of its top customers and maintains an allowance for potential credit losses.

Note 9—Accrued Expenses

Accrued expenses consist of the following (in thousands):

	2014		2015
Royalties	$	34,378	$	21,599
Sales commissions		1,914		1,132
Bonuses		6,200		6,275
Professional fees		2,780		2,535
Acquisition earn-out		6,831		―
Salaries and employee benefits		149		185
Interest expense		2,675		2,333
Unearned revenue		1,379		1,720
Molds and tools		2,093		2,669
Reorganization costs		1,626		90
Media expense		5,846		―
Inventory liabilities		6,898		6,754
Goods in transit		3,743		2,736
Preference claims		1,017		―
Other		9,445		6,053
	$	86,974	$	54,081

In addition to royalties currently payable on the sale of licensed products during the quarter, the Company records a liability as Accrued Royalties for the estimated shortfall in achieving minimum royalty guarantees pursuant to certain license agreements (Note 16).

The Company incurred reorganization charges in the fourth quarter of 2009 and 2013 to consolidate and stream-line its existing business functions. Reorganization charges relate to the termination of lease obligations, one-time severance termination benefits, property and equipment impairments and other contract terminations and are accounted for in accordance with “Exit and Disposal Cost Obligations” ASC 420-10.

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These rental property reorganization charges relate to the Company's Traditional Toys and Electronics segment. The components of the rental property reorganization charges are as follows (in thousands):

	Accrued Balance							Accrued Balance
	December 31, 2014		Accrual		Payments			December 31, 2015
2013 lease abandonment costs	$	1,258	$	―	$	(1,168	)	$	90
2009 lease abandonment costs		368		―		(368	)		―
Total reorganization charges	$	1,626	$	―	$	(1,536	)	$	90

Note 10—Related Party Transactions

A director of the Company is a partner in a law firm that acts as counsel to the Company. The Company incurred legal fees and expenses to the law firm in the amount of approximately $3.0 million in 2013, $2.4 million in 2014 and $3.1 million in 2015. As of December 31, 2014 and 2015, legal fees and reimbursable expenses of $0.6 million and $1.6 million, respectively, were payable to this law firm.

The owner of Nantworks, the Company’s DreamPlay Toys joint venture partner, beneficially owns 25.2% of the Company’s outstanding common stock, which includes 1.5 million shares underlying out-of-the-money stock warrants. Pursuant to the joint venture agreements, the Company is obligated to pay Nantworks a preferred return on joint venture sales.

For the years ended December 31, 2013, 2014 and 2015, preferred returns of $188,000, $821,939 and $718,767, respectively, were earned and payable to Nantworks. Pursuant to the amended Toy Services Agreement, Nantworks is entitled to receive a renewal fee in the amount $1.2 million payable in installments of $0.8 million paid on the effective date of the renewal in 2015 and $0.2 million on or before each of August 1, 2016 and 2017. As of December 31, 2014 and 2015, the Company has a receivable from Nantworks in the amount of $0.6 million and $0.6 million, respectively. In addition, the Company previously leased office space from Nantworks. Rent expense, including common area maintenance and parking, for the years ended December 31, 2013, 2014 and 2015 was $0.8 million, $1.3 million and $0.1 million, respectively.

Note 11—Credit Facility

In March 2014, the Company and its domestic subsidiaries entered into a secured credit facility with General Electric Capital Corporation (the “GE Loan Agreement”). The GE Loan Agreement, as amended, provides for a $75.0 million revolving credit facility subject to availability based on prescribed advance rates on certain accounts receivable and inventory. The amounts outstanding under the revolving credit facility are payable in full upon maturity of the revolving credit facility on March 27, 2019. The revolving credit facility is secured by a security interest in favor of the lender covering a substantial amount of the assets of the Company. The amount outstanding on the revolving credit facility as of December 31, 2014 and 2015 is nil and nil, respectively. The total borrowing capacity as of December 31, 2014 and 2015 was approximately $67.1 million and $55.5 million, respectively.

The Company’s ability to borrow under the GE Loan Agreement is also subject to its ongoing compliance with certain financial covenants, including that the Company and its domestic subsidiaries maintain a fixed charge coverage ratio of at least 1.2:1.0 based on the trailing four quarters.

The GE Loan Agreement allows the Company to borrow under the revolving credit facility at LIBOR or at a base rate, plus applicable margins of 225 basis point spread over LIBOR and 125 basis point spread on base rate loans. In addition to standard fees, the revolving credit facility has an unused line fee based on the unused amount of the credit facility, ranging from 25 to 50 basis points. As of December 31, 2015, the rate on the revolving credit facility was 2.25%.

The GE Loan Agreement also contains customary events of default, including a cross default provision and a change of control provision. In the event of a default, all of the obligations of the Company and its subsidiaries under the GE Loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.

As of December 31, 2015, the Company has outstanding letters of credit in the aggregate amount of $23.2 million.

As of December 31, 2015, the Company was in compliance with the financial covenants under the GE Loan Agreement.

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Note 12—Convertible Senior Notes

Convertible senior notes consist of the following (in thousands):

	December 31,
	2014		2015
4.25% Convertible senior notes (due 2018)	$	100,000	$	100,000
4.875% Convertible senior notes (due 2020)		115,000		115,000
	$	215,000	$	215,000

In November 2009, the Company sold an aggregate of $100.0 million principal amount of the 2014 Notes. The 2014 Notes, which were senior unsecured obligations of the Company, paid cash interest semi-annually at a rate of 4.50% per annum and matured on November 1, 2014. In July 2013, the Company repurchased an aggregate of $61.0 million principal amount of these notes at par plus accrued interest with a portion of the net proceeds from the issuance of $100.0 million principal amount of 4.25% convertible senior notes due 2018 resulting in a gain on extinguishment of $0.1 million. The remainder of these notes were redeemed at par at maturity on November 1, 2014.

ASC 470-20, “Debt with Conversion and Other Options,” requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) upon conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. In accordance with ASC 470-20, the Company allocated $13.7 million of the $100.0 million principal amount of the 2014 Notes to the equity component, which represents a discount to the debt that was being amortized to interest expense through November 1, 2014. Interest expense associated with the amortization of the discount was $2.0 million, $0.9 million, and nil for December 31, 2013, 2014 and 2015. The Company repurchased $61.0 million of the 2014 Notes during the year ended December 31, 2013 as discussed below, with $2.8 million of the price allocated to the repurchase of the related equity component. In addition, approximately $2.2 million of the unamortized debt discount and $0.6 million of debt issuance costs were written off in connection with the repurchase of the 2014 Notes. The remaining aggregate $39.0 million of principal amount of the 2014 Notes were redeemed at par at maturity on November 1, 2014. The balance of the discount was nil at December 31, 2014 and December 31, 2015.

In July 2013, the Company sold an aggregate of $100.0 million principal amount of the 2018 Notes. The 2018 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on August 1 and February 1 of each year at a rate of 4.25% per annum and will mature on August 1, 2018. The initial conversion rate for the 2018 Notes will be 114.3674 shares of the Company’s common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $8.74 per share of common stock, subject to adjustment in certain events. Holders of the 2018 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2018 Notes will be settled in shares of the Company’s common stock. The Company used $61.0 million of the approximate $96.0 million in net proceeds from the offering to repurchase at par $61.0 million principal amount of the 2014 Notes. The remainder of the net proceeds will be used for general corporate purposes.

In June 2014, the Company sold an aggregate of $115.0 million principal amount of 4.875% Convertible Senior Notes due 2020 (the “2020 Notes”). The 2020 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on June 1 and December 1 of each year at a rate of 4.875% per annum and will mature on June 1, 2020. The initial conversion rate for the 2020 Notes will be 103.7613 shares of our common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $9.64 per share of common stock, subject to adjustment in certain events. Holders of the 2020 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2020 Notes will be settled in shares of the Company’s common stock. The Company received net proceeds of approximately $110.4 million from the offering of which $24.0 million was used to repurchase 3.1 million shares of the Company’s common stock under a prepaid forward purchase contract and $39.0 million was used to redeem at par the remaining outstanding principal amount of the 2014 Notes at maturity on November 1, 2014. The remainder of the net proceeds will be used for general corporate purposes. In January 2016 the Company repurchased $2.0 million of the 2020 Notes.

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Key components of the 4.50% convertible senior notes due 2014 consist of the following (in thousands):

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense on the coupon	$	3,356	$	1,463	$	―
Amortization of debt discount and debt issuance costs recognized as interest expense		2,030		1,140		―
	$	5,386	$	2,603	$	―

Key components of the 4.25% convertible senior notes due 2018 consist of the following (in thousands):

	December 31,
	2014		2015
Principal amount of notes	$	100,000	$	100,000
Net carrying amount of the 2018 convertible notes	$	100,000	$	100,000

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense	$	1,771	$	4,250	$	4,250
Amortization of debt issuance costs recognized as interest expense		421		835		836
	$	2,192	$	5,085	$	5,086

Key components of the 4.875% convertible senior notes due 2020 consist of the following (in thousands):

	December 31,
	2014		2015
Principal amount of notes	$	115,000	$	115,000
Net carrying amount of the 2020 convertible notes	$	115,000	$	115,000

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense	$	—	$	3,135	$	5,606
Amortization of debt issuance costs recognized as interest expense		—		473		811
	$	—	$	3,608	$	6,417

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Note 13—Income Taxes

The Company does not file a consolidated return with its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective jurisdiction.

For the years ended 2013, 2014 and 2015, the provision for income taxes, which included federal, state and foreign income taxes, was an expense of $2.6 million, $3.7 million, and $3.4 million reflecting effective tax provision rates of (5.1%), 14.7% and 12.9%,  respectively.

For the year ended 2013 and 2014, provision for income taxes includes federal, state and foreign income taxes at effective tax rates of (5. l %) and 14.7%. Exclusive of discrete items, the effective tax provision rate would be (5.8%) in 2013 and 13.6% in 2014. The decrease in the effective rate absent discrete items was primarily due to the foreign rate differential between the United States and Hong Kong. The rate exclusive of discrete items can be materially impacted by the proportion of Hong Kong earnings to consolidated earnings.

The 2015 tax expense of $3.4 million included a discrete tax expense of $0.9 million primarily comprised of return to provision adjustments. Absent these discrete tax expenses, the Company’s effective tax rate for 2015 was 9.5%; primarily due to a full valuation allowance on the Company’s United States deferred tax assets and the foreign rate differential, and is impacted by the proportion of Hong Kong earnings to overall earnings and is expected to vary depending on the level of consolidated earnings.

For years ended 2014 and 2015, the Company had net deferred tax liabilities of approximately $2.6 million and $2.3 million, respectively, related to foreign jurisdictions.

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Provision for income taxes reflected in the accompanying consolidated statements of operations are comprised of the following (in thousands):

	2013			2014			2015
Federal	$	(1,862	)	$	(4	)	$	—
State and local		(390	)		287			708
Foreign		4,894			3,887			3,044
Total Current		2,642			4,170			3,752
APIC		(160	)		(84	)		—
Deferred		129			(371	)		(329	)
Total	$	2,611		$	3,715		$	3,423

The components of deferred tax assets/(liabilities) are as follows (in thousands):

	2014			2015
Net deferred tax assets/(liabilities):
Current:
Reserve for sales allowances and possible losses	$	1,034		$	797
Accrued expenses		8,231			1,252
Prepaid royalties		16,322			13,869
Accrued royalties		5,029			4,178
Inventory		4,065			3,495
State income taxes		(8,206	)		(7,231	)
Other		709			487
Gross current		27,184			16,847
Valuation allowance		(23,826	)		(19,586	)
Net current		3,358			(2,739	)
Long Term:
Federal and state net operating loss carryforwards		29,383			37,473
Property and equipment		4,542			4,039
Original issue discount interest		(13,561	)		(10,419	)
Goodwill and intangibles		43,269			36,990
Share based compensation		2,309			2,487
Other		11,037			11,228
Gross long-term		76,979			81,798
Valuation allowance		(82,959	)		(81,352	)
Net long-term		(5,980	)		446
Total net deferred tax assets/(liabilities)	$	(2,622	)	$	(2,293	)

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Provision for income taxes varies from the U.S. federal statutory rate. The following reconciliation shows the significant differences in the tax at statutory and effective rates:

	2013			2014			2015
Federal income tax expense		35.0	%		35.0	%		35.0	%
State income tax expense, net of federal tax effect		6.2			―			1.0
Effect of differences in U.S. and Foreign statutory rates		4.8			(14.1	)		(9.4	)
Uncertain tax positions		0.4			―			0.3
Earn out adjustments		―			―			(7.4	)
Provision to return		―			―			12.2
Other		4.3			(0.4	)		1.6
Foreign deemed dividend		(45.3	)		―			1.7
Foreign tax credit		21.4			―			(0.5	)
Valuation allowance		(31.9	)		(5.8	)		(21.6	)
		(5.1	)%		14.7	%		12.9	%

Deferred taxes result from temporary differences between tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. The temporary differences result from costs required to be capitalized for tax purposes by the U.S. Internal Revenue Code (“IRC”), and certain items accrued for financial reporting purposes in the year incurred but not deductible for tax purposes until paid. The Company has established a full valuation allowance on net deferred tax assets in the United States since, in the opinion of management, it is not more likely than not that the U.S. net deferred tax assets will be realized.

The components of income (loss) before provision (benefit) for income taxes are as follows (in thousands):

	2013			2014		2015
Domestic	$	(66,470	)	$	5,358	$	11,692
Foreign		15,175			19,866		14,901
	$	(51,295	)	$	25,224	$	26,593

The Company has approximately $252 million of cumulative undistributed earnings of non-U.S. subsidiaries for which U.S. taxes have not been provided as of December 31, 2015. These earnings are intended to be permanently reinvested outside the U.S. If future events necessitate that these earnings should be repatriated to the U.S., an additional tax expense and related liability may be required. The determination of the amount of unrecognized U.S. deferred tax liability for undistributed earnings of non-U.S. subsidiaries is not practicable. The Company also does not provide deferred taxes on foreign currency translation adjustments under the indefinite reversal exception.

The Company uses a recognition threshold and measurement process for recording in the consolidated financial statements uncertain tax positions (“UTP”) taken or expected to be taken in a tax return.

$1.8 million of additional UTPs related to Hong Kong mold depreciation were recognized in 2015. In addition, approximately $2.1 million of California audit and R&D Credit based UTPs became de-recognized during 2015, due to the closing of a California income tax audit. These items were included in the 2015 income tax provision. During 2014, approximately $44,000 of the liability for UTP was de-recognized.

Current interest on uncertain income tax liabilities is recognized as interest expense and penalties are recognized in selling, general and administrative expenses in the consolidated statement of operations. During 2013, the Company recognized $120,000 of current year interest expense relating to UTPs. During 2014, the Company recognized $150,000 of current year interest expense relating to UTPs. During 2015, the Company did not recognize any current year interest expense relating to UTPs.

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The following table provides further information of UTPs that would affect the effective tax rate, if recognized, as of December 31, 2015 (in millions):

Balance, January 1, 2013	$	4.8
Current year additions		0.3
Current year reduction due to lapse of applicable statute of limitations		(2.5	)
Balance, December 31, 2013		2.6
Current year additions		—
Current year reduction due to lapse of applicable statute of limitations		(0.1	)
Balance, December 31, 2014		2.5
Current year additions		1.8
Current year reduction due to audit settlement		(2.1	)
Balance, December 31, 2015	$	2.2

Tax years 2012 through 2014 remain subject to examination in the United States. The tax years 2010 through 2014 are generally still subject to examination in the various states. The tax years 2009 through 2014 are still subject to examination in Hong Kong. In the normal course of business, the Company is audited by federal, state, and foreign tax authorities. The U.S. Internal Revenue Service is not currently examining any of the tax years.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2015. Such objective evidence limits the ability to consider other subjective evidence such as the Company’s projections for future growth. The Company is required to establish a valuation allowance for the U.S. deferred tax assets and record a charge to income if Management determines, based upon available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.

For the three-year period ended December 31, 2015, the Company was in a cumulative pre-tax loss position in the U.S. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $100.9 million has been recorded against the U.S. deferred tax assets that more likely than not will not be realized. For the year ended December 31, 2015, the valuation allowance decreased by $5.9 million from $106.8 million at December 31, 2014 to $100.9 million at December 31, 2015. The net deferred tax liabilities of $2.3 million represent the net deferred tax liabilities in the foreign jurisdiction, where the Company is in a cumulative income position. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth.

At December 31, 2015, the Company had U.S. federal net operating loss carryforwards, or "NOLs," of approximately $76 million, which will begin to expire in 2031. At December 31, 2015, the Company's state NOLs were mainly from California. The majority of the approximately $110 million of California NOLs will begin to expire in 2031. At December 31, 2015, the Company had foreign tax credit carryforwards of approximately $12.6 million, which will begin to expire in 2022. At December 31, 2015, the Company had federal research and development tax credit carryforwards ("credit carryforwards") of approximately $0.5 million, which will begin to expire in 2029. At December 31, 2015, the Company had state research and development tax credits of approximately $140,000, which carry forward indefinitely. Utilization of certain NOLs and research credit carryforwards may be subject to an annual limitation due to ownership change limitations set forth in Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and comparable state income tax laws. Any future annual limitation may result in the expiration of NOLs and credit carryforwards before utilization.

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Note 14—Leases

The Company leases office, warehouse and showroom facilities and certain equipment under operating leases. Rent expense for the years ended December 31, 2013, 2014 and 2015 totaled $14.4 million, $13.0 million, and $11.5 million, respectively. Including leases abandoned during 2013 and 2014, the following is a schedule of minimum annual lease payments (in thousands).

2016	$	12,729
2017		12,524
2018		9,248
2019		5,995
2020		3,997
Thereafter		11,892
	$	56,385

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Note 15—Common Stock, Preferred Stock and Warrants

The Company has 105,000,000 authorized shares of stock consisting of 100,000,000 shares of $.001 par value common stock and 5,000,000 shares of $.001 par value preferred stock. On December 31, 2014 shares issued and outstanding were 22,682,295, and on December 31, 2015, shares issued and outstanding were 21,153,878.

All issuances of common stock, including those issued pursuant to stock option and warrant exercises, restricted stock grants and acquisitions, are issued from the Company’s authorized but not issued and outstanding shares.

During 2013, the Company declared a cash dividend of $0.07 per share to shareholders of record as of market close on March 15, 2013 and June 14, 2013. Cash paid for these dividends were approximately $1.5 million and $1.5 million, respectively. In July 2013, the dividend plan was suspended.

In January 2014, the Company issued an aggregate of 531,993 shares of restricted stock at a value of approximately $3.6 million to two executive officers, which vest, subject to certain company financial performance criteria, over a one to three year period. In addition, an aggregate of 78,150 shares of restricted stock were issued to its five non-employee directors, which vested in January 2015, at an aggregate value of approximately $0.5 million.

In June 2014, the Company effectively repurchased 3,112,840 shares of its common stock at an average cost of $7.71 per share for an aggregate amount of $24.0 million pursuant to a prepaid forward share repurchase agreement entered into with Merrill Lynch International (“ML”). These repurchased shares are treated as retired for basic and diluted EPS purposes although they remain legally outstanding. The Company reflects the aggregate purchase price of its common shares repurchased as a reduction to stockholders’ equity allocated to treasury stock. No shares have been delivered to the Company by ML as of December 31, 2015.

In January 2015, the Company issued an aggregate of 525,734 shares of restricted stock at a value of approximately $3.6 million to two executive officers, which vest, subject to certain company financial performance criteria and market conditions, over a one to three year period. In addition, an aggregate of 73,855 shares of restricted stock were issued to its five non-employee directors, which vest in January 2016, at an aggregate value of approximately $0.5 million.

In April 2015, the Company issued an aggregate of 135,234 shares of restricted stock at a value of approximately $0.9 million to an executive officer, which vests subject to certain company financial performance criteria and market conditions, over a one to three year period.

In June 2015, the Board of Directors authorized the repurchase of up to an aggregate of $30.0 million of the Company’s outstanding common stock and/or convertible notes (collectively, “securities”). The Company intends to retire any repurchased securities. As of December 31, 2015, the Company repurchased 1,547,361 shares of its common stock at an aggregate value of $13.2 million, of which 1,000,000 shares have been retired and cancelled. No convertible notes have been repurchased as of December 31, 2015.

No dividend was declared or paid in 2014 and 2015.

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Note 16—Commitments

The Company has entered into various license agreements whereby the Company may use certain characters and intellectual properties in conjunction with its products. Generally, such license agreements provide for royalties to be paid at 1% to 20% of net sales with minimum guarantees and advance payments.

In the event the Company determines that a shortfall in achieving the minimum guarantee is likely, a liability is recorded for the estimated short fall and charged to royalty expense.

Future annual minimum royalty guarantees as of December 31, 2015 are as follows (in thousands):

2016	$	32,427
2017		28,696
2018		17,659
2019		10
	$	78,792

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The Company has entered into employment and consulting agreements with certain executives expiring through December 31, 2018. The aggregate future annual minimum guaranteed amounts due under those agreements as of December 31, 2015 are as follows (in thousands):

2016	$	6,869
2017		5,324
2018		1,315
	$	13,508

Note 17—Share-Based Payments

Under its 2002 Stock Award and Incentive Plan (“the Plan”), which incorporated its Third Amended and Restated 1995 Stock Option Plan, the Company has reserved 6,525,000 shares of its common stock for issuance upon the exercise of options granted under the Plan, as well as for the awarding of other securities. Under the Plan, employees (including officers), non-employee directors and independent consultants may be granted options to purchase shares of common stock and other securities (Note 15). The vesting of these options and other securities may vary, but typically vest on a step-up basis over a maximum period of 4 years. Restricted shares typically vest in the same manner, with the exception of certain awards vesting over one to two years. Share-based compensation expense is recognized on a straight-line basis over the requisite service period. As of December 31, 2015, 708,123 shares were available for future grant. Additional shares may become available to the extent that options or shares of restricted stock presently outstanding under the Plan terminate or expire.

Restricted Stock

Under the Plan, share-based compensation payments may include the issuance of shares of restricted stock. Restricted stock award grants are based upon employment contracts, which vary by individual and year, and are subject to vesting conditions. Non-employee directors each receive grants of restricted stock at a value of $100,000 annually which vest after one year – this amount is prorated if a director is appointed within the year. In addition, at the discretion of Management and approval of the Board, non-executive employees also may receive restricted stock awards, which occurs approximately once per year.

During 2013, the Company issued a total of 996,990 shares of restricted stock, of which, 285,543 shares of restricted stock (with performance based vesting measures) were issued to two executive officers and were subsequently forfeited based upon the Company not meeting certain financial targets for the year. 54,227 shares were granted to its non-employee directors. The remaining 657,220 shares of restricted stock were granted to non-executive employees. The Company cancelled 4,582 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2013, certain employees, including an executive officer, surrendered an aggregate of 7,540 shares of restricted stock at a value of less than $0.1 million to cover income taxes on the vesting of shares. As of December 31, 2013, 721,752 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $5.0 million.

During 2014, the Company issued a total of 610,143 shares of restricted stock; of which 531,993 shares of restricted stock (with performance based vesting measures) were issued to two executive officers and were subsequently forfeited based upon the Company not meeting certain financial targets for the year. A total of 78,150 shares were granted to its non-employee directors. The Company cancelled 12,658 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2014, certain employees, including an executive officer, surrendered an aggregate of 51,877 shares of restricted stock at a value of less than $0.1 million to cover income taxes due on the vesting of restricted shares. As of December 31, 2014, 568,057 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $3.7 million.

During 2015, the Company issued a total of 734,823 shares of restricted stock; of which 660,968 shares of restricted stock (with performance based vesting measures) were issued to two executive officers. Of the 660,968 shares, a total of 612,221 were subsequently forfeited based upon the Company not meeting certain financial targets for the year. A total of 73,855 shares were granted to its non-employee directors. The Company cancelled 51,633 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2015, certain employees, including an executive officer, surrendered an aggregate of 52,024 shares of restricted stock for a nominal amount to cover income taxes due on the vesting of restricted shares. As of December 31, 2015, 411,409 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $2.7 million.

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The following table summarizes the restricted stock award activity, annually, for the years ended December 31, 2013, 2014 and 2015:

	Restricted and Performance Based Stock Awards (RSA)
	Number of Shares			Weighted  Average Fair Value
Outstanding, December 31, 2012		95,315		$	16.75
Awarded		996,990		$	8.38
Released		(80,428	)	$	16.46
Forfeited		(290,125	)	$	12.61
Outstanding, December 31, 2013		721,752		$	6.88
Awarded		610,143		$	6.72
Released		(219,187	)	$	7.99
Forfeited		(544,651	)	$	6.61
Outstanding, December 31, 2014		568,057		$	6.54
Awarded		734,823		$	6.81
Released		(227,616	)	$	6.60
Forfeited		(663,855	)	$	6.77
Outstanding, December 31, 2015		411,409		$	6.61

As of December 31, 2015, there was $1.8 million of total unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a weighted-average period of 1.85 years.

The following table summarizes the total share-based compensation expense and related tax benefits recognized (in thousands):

	Year Ended December 31,
	2013		2014		2015
Restricted stock compensation expense	$	1,085	$	1,473	$	1,562
Tax benefit related to restricted stock compensation	$	—	$	—	$	—

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Stock Options

Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee's requisite service period. For the three years in the period ending December 31, 2015, the Company incurred no expense related to stock options previously awarded.

The Company uses the Black-Scholes method of valuation for share-based option awards. In valuing the stock options, the Black-Scholes model incorporates assumptions about stock volatility, expected term of stock options, and risk free interest rate. The valuation is reduced by an estimate of stock option forfeitures.

Stock option activity pursuant to the Plan is summarized as follows:

				Weighted
				Average
	Number			Exercise
	of Shares			Price
Outstanding, December 31, 2012		134,644		$	19.82
Canceled		(7,500	)	$	13.39
Outstanding, December 31, 2013		127,144		$	20.20
Canceled		(52,144	)	$	19.50
Outstanding, December 31, 2014		75,000		$	20.69
Canceled		(75,000	)	$	20.69
Outstanding, December 31, 2015		-

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Non-Employee Stock Warrants

In 2012, the Company granted 1,500,000 stock warrants with an exercise price of $16.28 per share and a five year term to a third party as partial consideration for the exclusive right to use certain recognition technology in connection with the Company’s toy products. The exercise price of the 2012 stock warrants is equal to the volume-weighted average price of the Company’s common stock over the five trading days preceding the date of grant. All warrants vested upon grant and are exercisable over the term of the warrants. At December 31, 2013, 2014 and 2015 all such stock warrants remained outstanding with an exercise price of $16.28 per share and an expiration date of September 12, 2017.

The Company measures the fair value of the warrants granted on the measurement date. The fair value of the 2012 stock warrant is capitalized as an intangible asset and will be amortized to expense in the consolidated statements of operations when the related product is released and the related net sales are recognized, which commenced in the third quarter of 2013.

Note 18—Employee Benefits Plan

The Company sponsors for its U.S. employees, a defined contribution plan under Section 401(k) of the Internal Revenue Code. The Plan provides that employees may defer up to 50% of their annual compensation subject to annual dollar limitations, and that the Company will make a matching contribution equal to 100% of each employee’s deferral, up to 5% of the employee’s annual compensation. Company matching contributions, which vest immediately, totaled $2.1 million, $1.9 million, and $2.2 million for the years ended December 31, 2013, 2014 and 2015, respectively.

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Note 19—Supplemental Information to Consolidated Statements of Cash Flows

In 2013, certain employees – including an executive officer, surrendered an aggregate of 7,540 shares of restricted stock at a value of less than $0.1 million to cover their income taxes due on the 2013 vesting of the restricted shares granted them in 2009, 2010, 2011 and 2012. Additionally, the Company recognized a $0.2 million excess tax deficiency from the vesting of restricted stock.

In 2014, certain employees – including an executive officer, surrendered an aggregate of 51,877 shares of restricted stock at a value of less than $0.1 million to cover their income taxes due on the 2014 vesting of the restricted shares granted them in 2013 and prior. Additionally, the Company recognized a $0.1 million excess tax deficiency from the vesting of restricted stock.

In 2015, certain employees – including an executive officer, surrendered an aggregate of 52,024 shares of restricted stock for a nominal amount to cover their income taxes due on the 2015 vesting of the restricted shares granted them in 2014 and prior. Additionally, the Company recognized a nominal excess tax benefit from the vesting of restricted stock.

Note 20—Selected Quarterly Financial Data (Unaudited)

Selected unaudited quarterly financial data for the years 2014 and 2015 are summarized below. The Company has derived this data from the unaudited consolidated interim financial statements that, in the Company's opinion, have been prepared on substantially the same basis as the audited financial statements contained elsewhere in this report and include all normal recurring adjustments necessary for a fair presentation of the financial information for the periods presented. These unaudited quaterly results should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.

	2014										2015
	First			Second			Third		Fourth		First			Second			Third		Fourth
	Quarter			Quarter			Quarter		Quarter		Quarter			Quarter			Quarter		Quarter
	(in thousands, except per share data)
Net sales	$	82,510		$	124,172		$	349,362	$	254,016	$	114,201		$	131,106		$	337,027	$	163,407
Gross profit	$	23,555		$	37,818		$	94,737	$	79,697	$	35,378		$	39,287		$	104,329	$	49,575
Income (loss) from operations	$	(14,924	)	$	(4,819	)	$	43,812	$	7,258	$	(4,199	)	$	(3,008	)	$	44,628	$	(6,891	)
Income (loss) before provision (benefit) for income taxes	$	(16,789	)	$	(7,772	)	$	45,807	$	3,978	$	(7,154	)	$	(4,414	)	$	47,239	$	(9,078	)
Net income (loss)	$	(16,305	)	$	(9,053	)	$	44,069	$	2,798	$	(7,581	)	$	(5,727	)	$	45,864	$	(9,386	)
Basic earnings (loss) per share	$	(0.74	)	$	(0.43	)	$	2.33	$	0.14	$	(0.40	)	$	(0.30	)	$	2.47	$	(0.50	)
Weighted average shares outstanding		22,003			21,276			18,897		19,570		19,090			19,108			18,559		18,781
Diluted earnings (loss) per share	$	(0.74	)	$	(0.43	)	$	1.03	$	0.11	$	(0.40	)	$	(0.30	)	$	1.12	$	(0.50	)
Weighted average shares and equivalents outstanding		22,003			21,276			45,152		44,060		19,090			19,108			42,562		18,781

Quarterly and year-to-date computations of income (loss) per share amounts are made independently. Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for the year.

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Note 21—Litigation

On July 25, 2013, a purported class action lawsuit was filed in the United States District Court for the Central District of California captioned Melot v. JAKKS Pacific, Inc. et al., Case No. CV13-05388 (JAK) against Stephen G. Berman, Joel M. Bennett (collectively the “Individual Defendants”), and the Company (collectively, “Defendants”). On July 30, 2013, a second purported class action lawsuit was filed containing similar allegations against Defendants captioned Dylewicz v. JAKKS Pacific, Inc. et al., Case No. CV13-5487 (OON). The two cases (collectively, the “Class Action”) were consolidated on December 2, 2013 under Case No. CV13-05388 JAK (SSx) and lead plaintiff and lead counsel appointed. On January 17, 2014, Plaintiff filed a consolidated class action complaint (the “First Amended Complaint”) against Defendants which alleged that the Company violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder by making false and/or misleading statements concerning Company financial projections and performance as part of its public filings and earnings calls from July 17, 2012 through July 17, 2013. Specifically, the First Amended Complaint alleged that the Company’s forward looking statements, guidance and other public statements were false and misleading for allegedly failing to disclose (i) certain alleged internal forecasts, (ii) the Company's alleged quarterly practice of laying off and rehiring workers, (iii) the Company's alleged entry into license agreements with guaranteed minimums the Company allegedly knew it was unable to meet; and (iv) allegedly poor performance of the Monsuno and Winx lines of products after their launch. The First Amended Complaint also alleged violations of Section 20(a) of the Exchange Act by Messrs. Berman and Bennett. The First Amended Complaint sought compensatory and other damages in an undisclosed amount as well as attorneys’ fees and pre-judgment and post-judgment interest. The Company filed a motion to dismiss the First Amended Complaint on February 17, 2014, and the motion was granted, with leave to replead. A Second Amended Complaint (“SAC”) was filed on July 8, 2014 and it set forth similar allegations to those in the First Amended Complaint about discrepancies between internal projections and public forecasts and the other allegations except that the claim with respect to guaranteed minimums that the Company allegedly knew it was unable to meet was eliminated. The Company filed a motion to dismiss the SAC and that motion was granted with leave to replead. A Third Amended Complaint (“TAC”) was filed on March 23, 2015 with similar allegations. The Company filed a motion to dismiss the TAC and that motion was argued on July 22, 2015; after argument it was taken on submission and a decision has not been issued. The foregoing is a summary of the pleadings and is subject to the text of the pleadings which are on file with the Court. We believe that the claims in the Class Action are without merit, and we intend to defend vigorously against them. However, because the Class Action is in a preliminary stage, we cannot assure you as to its outcome, or that an adverse decision in such action would not have a material adverse effect on our business, financial condition or results of operations.

On February 25, 2014, a shareholder derivative action was filed in the Central District of California by Advanced Advisors, G.P. against the Company, nominally, and against Messrs. Berman, Bennett, Miller, Skala, Glick, Ellin, Almagor, Poulsen and Reilly and Ms. Brodsky (Advanced Partners, G.P., v. Berman, et al., CV14-1420 (DSF)).On March 6, 2014, a second shareholder derivative action alleging largely the same claims against the same defendants was filed in the Central District of California by Louisiana Municipal Police Employees Retirement System (Louisiana Municipal Police Employees Retirement System v, Berman et al., CV14-1670 (GHF). On April 17, 2014, the cases were consolidated under Case No. 2:14-01420-JAK (SSx) (the “Derivative Action”). On April 30, 2014, a consolidated amended complaint (“CAC”) was filed, which alleged (i) a claim for contribution under Sections 10(b) and 21(D) of the Securities Exchange Act related to allegations made in the Class Action; (ii) derivative and direct claims for alleged violations of Section 14 of the Exchange Act and Rule 14a-9 promulgated thereunder related to allegedly misleading statements about Mr. Berman’s compensation plan in the Company’s October 25, 2013 proxy statement; (iii) derivative claims for breaches of fiduciary duty related to the Company’s response to an unsolicited indication of interest from Oaktree Capital, stock repurchase, standstill agreement with the Clinton Group, and decisions related to the NantWorks joint venture; and (iv) claims against Messrs. Berman and Bennett for breach of fiduciary duty related to the Class Action. The CAC seeks compensatory damages, pre-judgment and post-judgment interest, and declaratory and equitable relief. The foregoing is a summary of the CAC and is subject to the text of the CAC, which is on file with the Court. A motion to dismiss the CAC or, in the alternative, to stay the CAC, was filed in May 2014. The Court granted the motion in part and denied the motion in part with leave for plaintiff to file an amended pleading. Plaintiff declined to do so. Accordingly, claims i, ii and iv have been dismissed and only the elements of claim iii not relating to the NantWorks joint venture remain. Thus, there are no surviving claims against Messrs. Poulsen, Reilly and Bennett and Ms. Brodsky and the Court approved the parties’ stipulation to strike their names as defendants in the CAC. Pleadings in response to the CAC were filed on October 30, 2014, which are on file with the Court. The matter was referred to mediation by the Court and the parties, at the mediation, reached an agreement in principle to resolve the action. Thereafter the parties entered into a memorandum of such agreement, subject to Court approval. A motion was filed seeking preliminary approval of the settlement and establishment of the procedure for final approval of the settlement; preliminary approval of the settlement was granted and a hearing regarding final approval of the proposed settlement and attorneys’ fees in connection therewith took place on November 2, 2015. At the hearing, the Judge indicated that he would approve the settlement with a formal order, and that he would take the attorneys’ fee issue under advisement.

We are a party to, and certain of our property is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of our business, but we do not believe that any of these claims or proceedings will have a material effect on our business, financial condition or results of operations.

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JAKKS PACIFIC, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2013, 2014 and 2015

Allowances are deducted from the assets to which they apply, except for sales returns and allowances.

	Balance at		Charged to						Balance
	Beginning		Costs and						at End
	of Period		Expenses			Deductions			of Period
	(In thousands)
Year ended December 31, 2013:
Allowance for:
Uncollectible accounts	$	2,536	$	541		$	(149	)	$	2,928
Reserve for potential product obsolescence		9,951		16,257			(16,721	)		9,487
Reserve for sales returns and allowances		34,373		37,727			(40,726	)		31,374
	$	46,860	$	54,525		$	(57,596	)	$	43,789
Year ended December 31, 2014:
Allowance for:
Uncollectible accounts	$	2,928	$	1,545		$	(1,209)		$	3,264
Reserve for potential product obsolescence		9,487		5,524			(7,134)			7,877
Reserve for sales returns and allowances		31,374		44,741			(51,638)			24,477
	$	43,789	$	51,810		$	(59,981)		$	35,618
Year ended December 31, 2015:
Allowance for:
Uncollectible accounts	$	3,264	$	(143	)	$	(407	)	$	2,714
Reserve for potential product obsolescence		7,877		1,511			(1,337	)		8,051
Reserve for sales returns and allowances		24,477		42,507			(49,717	)		17,267
	$	35,618	$	43,875		$	(51,461	)	$	28,032

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report, have concluded that as of December 31, 2015, our disclosure controls and procedures were adequate and effective to ensure that information required to be disclosed by us in the reports we file or submit with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting.

There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) and 15d-15 that occurred during the fourth quarter period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting.

We, as management, are responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Exchange Act Rule 13a-15(f)). Our internal control system was designed by or is under the supervision of management and our board of directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in  Internal Control — Integrated Framework (2013). We believe that, as of December 31, 2015, our internal control over financial reporting was effective based upon those criteria.

Our independent registered public accounting firm has issued a report on our internal control over financial reporting. This report appears below.

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Report of the Independent Registered Public Accounting Firm.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

JAKKS Pacific, Inc.

Santa Monica, California

We have audited JAKKS Pacific, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in  Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). JAKKS Pacific, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, JAKKS Pacific, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of JAKKS Pacific, Inc. as of December 31, 2014 and 2015, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015 and our report dated March 15, 2016 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

BDO USA, LLP

Los Angeles, California

March 15, 2016

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PART III

Item 10.  Directors, Executive Officers, and Corporate Governance

Directors and Executive Officers

Our directors and executive officers are as follows:

Name	Age	Positions with the Company
Stephen G. Berman	51	Chief Executive Officer, President, Secretary and Director
Joel M. Bennett	54	Executive Vice President and Chief Financial Officer
John J. McGrath	50	Chief Operating Officer
Michael S. Sitrick	68	Director
Murray L. Skala	69	Director
Alexander Shoghi	34	Director
Rex H. Poulsen	64	Director

Stephen G. Berman has been our Chief Operating Officer (until August 23, 2011) and Secretary and one of our directors since co-founding JAKKS in January 1995. From February 17, 2009 through March 31, 2010 he was also our Co-Chief Executive Officer and has been our Chief Executive Officer since April 1, 2010. Since January 1, 1999, he has also served as our President. From our inception until December 31, 1998, Mr. Berman was also our Executive Vice President. From October 1991 to August 1995, Mr. Berman was a Vice President and Managing Director of THQ International, Inc., a subsidiary of THQ. From 1988 to 1991, he was President and an owner of Balanced Approach, Inc., a distributor of personal fitness products and services.

John J. (Jack) McGrath is our Chief Operating Officer. He was our Executive Vice President of Operations from December 2007 until August 2011 and became Chief Operating Officer in August 2011. Mr. McGrath was our Vice President of Marketing from 1999 to August 2003 and became a Senior Vice President of Operations in August 2003 and Executive Vice President of Operations in December 2007. From January 1992 to December 1998, Mr. McGrath was Director of Marketing at Mattel Inc. and prior thereto he was a PFC in the U.S. Army. Mr. McGrath holds a Bachelor of Science degree in Marketing.

Joel M. Bennett joined us in September 1995 as Chief Financial Officer and was given the additional title of Executive Vice President in May 2000. From August 1993 to September 1995, he served in several financial management capacities at Time Warner Entertainment Company, L.P., including as Controller of Warner Brothers Consumer Products Worldwide Merchandising and Interactive Entertainment. From June 1991 to August 1993, Mr. Bennett was Vice President and Chief Financial Officer of TTI Technologies, Inc., a direct-mail computer hardware and software distribution company. From 1986 to June 1991, Mr. Bennett held various financial management positions at The Walt Disney Company, including Senior Manager of Finance for its international television syndication and production division. Mr. Bennett began his career at Ernst & Young LLP as an auditor from August 1983 to August 1986. Mr. Bennett holds a Bachelor of Science degree in Accounting and a Master of Business Administration degree in Finance and is a Certified Public Accountant (inactive).

Michael S. Sitrick has been a director since December 19, 2014. Since November 2009, Mr. Sitrick is the chairman and chief executive officer of Sitrick Brinko LLC, a subsidiary of Resources Connection, Inc (NASDAQ: RECN)., and the successor to Sitrick And Company which he founded in 1989 and was its founder, chairman and chief executive officer until he sold it to Resources Connection, Inc. in 2009, which is a public relations, strategic communications and crisis management company providing advice and counseling to some of the country’s largest corporations, non-profits and governmental agencies, in many areas including mergers and acquisitions, litigation support, corporate positioning and repositioning, developing and implementing strategies to deal with short sellers, executive transitions and government investigations. Prior thereto he was an executive and Senior Vice President – Communications for Wickes Companies, Inc. (from 1981to1989), head of Communications and Government Affairs for National Can Corporation (from 1974 to 1981) and Group Supervisor at Selz, Seabolt and Associates before that. Prior thereto Mr. Sitrick was Assistant Director of Public Information in the Richard J. Daley administration in Chicago and worked as a reporter. Mr. Sitrick is a published author, frequent lecturer, a former board member at two public companies (both of which were sold) and a current and former board member of several charitable organizations. He holds a B.S. degree in Business Administration and a major in Journalism from the University of Maryland, College Park.

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Murray L. Skala has been one of our directors since October 1995. Since 1976, Mr. Skala has been a partner of the law firm Feder Kaszovitz LLP, our general counsel. 

Alexander Shoghi has been a director since December 18, 2015. Mr. Shoghi is a Portfolio Manager at Oasis Management, a private investment management firm headquartered in Hong Kong. Mr. Shoghi joined Oasis in 2005, first based in Hong Kong, and subsequently relocating to the US as the founder and manager of Oasis Capital in Austin, Texas in early 2012. From 2004 to 2005, Mr. Shoghi worked at Lehman Brothers in New York City. Mr. Shoghi received a Bachelor of Science of Business Administration in Finance and International Business from Georgetown University in 2004.

Rex H. Poulsen has been a director since December 26, 2012. Mr. Poulsen is currently a partner in the Glendale, California office of Hutchinson and Bloodgood LLP, a regional certified public accounting and consulting firm registered with the PCAOB. Mr. Poulsen has been continuously licensed as a Certified Public Accountant since 1974, and has spent most of his career with public accounting firms as an independent auditor of both private and publicly-held companies. Mr. Poulsen also has extensive experience in assisting companies in the areas of due diligence, valuation, and other services related to the purchase and sale of businesses, as well as providing services in connection with litigation matters including forensic accounting  assignments and expert witness testimony. Mr. Poulsen received a Bachelor of Science degree in Accounting from Weber State University in 1973, and is a member of the American Institute of Certified Public Accountants.

Mr. Fergus McGovern was a director from December 19, 2014 until his unexpected and untimely death on February 27, 2016.

A majority of our directors are “independent,” as defined under the rules of Nasdaq. Such independent directors are Messrs. Sitrick, Poulsen and Shoghi. Our directors hold office until the next annual meeting of stockholders and until their successors are elected and qualified. Our officers are elected annually by our Board of Directors and serve at its discretion. None of our current independent directors have served as such for more than the past five years and were initially selected for their experience as a businessman (Sitrick); for financial expertise (Poulsen); and for experience with finance and capital markets (Shoghi). We believe that our board is best served by benefiting from this blend of business and financial expertise and experience. Our remaining directors consist of our chief executive officer who brings management’s perspective to the board’s deliberations and, our longest serving director (Skala), who, as an attorney with many years’ experience advising businesses, is able to provide guidance to the board from a legal perspective.

Committees of the Board of Directors

We have an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

Audit Committee.   In addition to risk management functions, the primary functions of the Audit Committee are to select or to recommend to our Board the selection of outside auditors; to monitor our relationships with our outside auditors and their interaction with our management in order to ensure their independence and objectivity; to review, and to assess the scope and quality of, our outside auditor’s services, including the audit of our annual financial statements; to review our financial management and accounting procedures; to review our financial statements with our management and outside auditors; and to review the adequacy of our system of internal accounting controls. Messrs. Poulsen (chairman), Sitrick and Shoghi are the current members of the Audit Committee and are each “independent” (as that term is defined in NASD Rule 4200(a)(14)), and are each able to read and understand fundamental financial statements. Mr. Poulsen, our audit committee financial expert, is the Chairman of the Audit Committee and possesses the financial expertise required under Rule 401(h) of Regulation S-K of the Act and NASD Rule 4350(d)(2). He is further “independent”, as that term is defined under Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act. We will, in the future, continue to have (i) an Audit Committee of at least three members comprised solely of independent directors, each of whom will be able to read and understand fundamental financial statements (or will become able to do so within a reasonable period of time after his or her appointment); and (ii) at least one member of the Audit Committee that will possess the financial expertise required under NASD Rule 4350(d)(2). Our Board has adopted a written charter for the Audit Committee and the Audit Committee reviews and reassesses the adequacy of that charter on an annual basis. The full text of the charter is available on our website at www.jakks.com.

Compensation Committee.    In addition to risk management functions, the functions of the Compensation Committee are to make recommendations to the Board regarding compensation of management employees and to administer plans and programs relating to employee benefits, incentives, compensation and awards under our 2002 Stock Award and Incentive Plan (the “2002 Plan”). Messrs. Sitrick (Chairman) and Poulsen are the current members of the Compensation Committee. The Board has determined that each of them is “independent,” as defined under the applicable rules of Nasdaq. A copy of the Compensation Committee’s Charter is available on our website at www.jakks.com. Executive officers that are members of our Board make recommendations to the Compensation Committee with respect to the compensation of other executive officers that are not on the Board. Except as otherwise prohibited, the Committee may delegate its responsibilities to subcommittees or individuals. The Compensation Committee has the authority, in its sole discretion, to retain or obtain advice from a compensation consultant, legal counsel or other advisor and is directly responsible for the appointment, compensation and oversight of such persons. The Company provides the appropriate funding to such persons as determined by the Compensation Committee. The Compensation Committee conducts an independence assessment of its outside advisors using the six factors contained in Exchange Act Rule 10C-1. The Compensation Committee receives legal advice from our outside general counsel and for 2015 retained Lipis Consulting, Inc. (“LCI), a compensation consulting firm, which provides advice directly to the Compensation Committee.

The Compensation Committee also annually reviews the overall compensation of our executive officers for the purpose of determining whether discretionary bonuses should be granted. In 2015, LCI presented a report to the Compensation Committee comparing our performance, size and executive compensation levels to those of peer group companies. LCI also reviewed with the Compensation Committee the base salaries, annual bonuses, total cash compensation, long-term compensation and total compensation of our senior executive officers relative to those companies. The performance comparison presented to the Compensation Committee each year includes a comparison of our total shareholder return, earnings per share growth, sales, net income (and one-year growth of both measures) to the peer group companies. The Compensation Committee reviews this information along with details about the components of each executive officer’s compensation. LCI also provided guidance to the Compensation Committee with respect to the extension of Messrs. McGrath’s and Bennett’s employment agreements (see “ - Employment Agreements”). The Compensation Committee consulted with Frederick W. Cook & Co., Inc. (“FWC), a compensation consulting firm, in 2012 with respect to determination of a portion of Mr. Berman’s bonus criteria for 2012, and in 2013 with respect to determination of a portion of his bonus criteria for 2013, and in 2014 with respect to the determination of a portion of his bonus criteria for 2014. The Compensation Committee also consulted with FWC in 2013 with respect to a portion of Mr. McGrath’s bonus criteria for 2013 and in 2014 with respect to a portion of his bonus criteria for 2014.  The Compensation Committee consulted with LCI with respect to establishing the bonus criteria for Messrs. Berman and McGrath for 2015.

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Nominating and Corporate Governance Committee.    In addition to risk management functions, the functions of the Nominating and Corporate Governance Committee are to develop our corporate governance system and to review proposed new members of our board of directors, including those recommended by our stockholders. Messrs. Poulsen (Chairman) and Sitrick are the current members of our Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee operates pursuant to a written charter adopted by the Board. The full text of the charter is available on our website at www.jakks.com. The Board has determined that each member of this Committee is “independent,” as defined under the applicable rules of Nasdaq.

The Nominating and Corporate Governance Committee reviews, on an annual basis, the composition of our Board of Directors and the ability of its current members to continue effectively as directors for the upcoming fiscal year. The Nominating and Corporate Governance Committee has considered the need for the role of Chairman of the Board and if the position is reestablished, its relation to the Chief Executive Officer. In the ordinary course, absent special circumstances or a change in the criteria for Board membership, the Nominating and Corporate Governance Committee will renominate incumbent directors who continue to be qualified for Board service and are willing to continue as directors. If that Committee thinks it is in our best interests to nominate a new individual for director in connection with an annual meeting of stockholders, or if a vacancy on the Board occurs between annual stockholder meetings or an incumbent director chooses not to run, the nominating committee will seek out potential candidates for Board appointment who meet the criteria for selection as a nominee and have the specific qualities or skills being sought. Director candidates will be selected based on input from members of the Board, our senior management and, if the Committee deems appropriate, a third-party search firm. The Nominating and Corporate Governance Committee will evaluate each candidate’s qualifications and check relevant references and each candidate will be interviewed by at least one member of that Committee. Candidates meriting serious consideration will meet with all members of the Board. Based on this input, the Nominating and Corporate Governance Committee will evaluate whether a prospective candidate is qualified to serve as a director and whether the Committee should recommend to the Board that this candidate be appointed to fill a current vacancy on the Board, or presented for the approval of the stockholders, as appropriate.

Following the procedures described above, it is anticipated that the Nominating and Corporate Governance Committee will recommend a candidate to fill the vacant seat on the Board created by the sudden and untimely death of Mr. McGovern on February 27,

2016.

Capital Allocation Committee.  The functions of the Capital Allocation Committee are to make recommendations to the Board regarding our capital structure, material capital allocation decisions, strategic investments, acquisitions and dispositions, and other opportunities for maximizing shareholder value.  Messrs. Sitrick (Chairman), Poulsen and Skala are the current members of the Compensation Committee. The Board has determined that a majority of them is “independent,” as defined under the applicable rules of Nasdaq.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us during 2015 and Forms 5 and amendments thereto furnished to us with respect to 2015, each of our directors filed one Form 4 late as did two of our executive officers, but all other Forms 3, 4 and 5 required to be filed during 2015 by our directors and executive officers were done so on a timely basis.

Code of Ethics

We have a Code of Ethics (which we call a code of conduct) that applies to all our employees, officers and directors. This code was filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2003. We have posted on our website, www.jakks.com, the full text of such Code. We will disclose when there have been waivers of, or amendments to, such Code, as required by the rules and regulations promulgated by the Securities and Exchange Commission and/or Nasdaq.

Pursuant to our Code of Conduct (a copy of which may be found on our website, www.jakks.com), all of our employees are required to disclose to our General Counsel, the Board of Directors or any committee established by the Board of Directors to receive such information, any material transaction or relationship that reasonably could be expected to give rise to actual or apparent conflicts of interest between any of them, personally, and us. In addition, our Code of Conduct also directs all employees to avoid any self-interested transactions without full disclosure. This policy, which applies to all of our employees, is reiterated in our Employee Handbook which states that a violation of this policy could be grounds for termination. In approving or rejecting a proposed transaction, our General Counsel, Board of Directors or designated committee will consider the facts and circumstances available and deemed relevant, including but not limited to, the risks, costs, and benefits to us, the terms of the transactions, the availability of other sources for comparable services or products, and, if applicable, the impact on director independence. Upon concluding their review, they will only approve those agreements that, in light of known circumstances, are in or are not inconsistent with, our best interests, as they determine in good faith.

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Item 11.  Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Philosophy and Objectives

We believe that a strong management team comprised of highly talented individuals in key positions is critical to our ability to deliver sustained growth and profitability, and our executive compensation program is an important tool for attracting and retaining such individuals. We also believe that our most important resource is our people. While some companies may enjoy an exclusive or limited franchise or are able to exploit unique assets or proprietary technology, we depend fundamentally on the skills, energy and dedication of our employees to drive our business. It is only through their constant efforts that we are able to innovate through the creation of new products and the continual rejuvenation of our product lines, to maintain superior operating efficiencies, and to develop and exploit marketing channels. With this in mind, we have consistently sought to employ the most talented, accomplished and energetic people available in the industry. Therefore, we believe it is vital that our named executive officers receive an aggregate compensation package that is both highly competitive with the compensation received by similarly-situated executive officers at peer group companies, and also reflective of each individual named executive officer’s contributions to our success on both a long-term and short-term basis. As discussed in greater depth below, the objectives of our compensation program are designed to execute this philosophy by compensating our executives at the top quartile of their peers.

Our executive compensation program is designed with three main objectives:

● to offer a competitive total compensation opportunity that will allow us to continue to retain and motivate highly talented individuals to fill key positions;

● to align a significant portion of each executive’s total compensation with our annual performance and the interests of our stockholders; and

● reflect the qualifications, skills, experience and responsibilities of our executives

Administration and Process

Our executive compensation program is administered by the Compensation Committee. The Compensation Committee receives legal advice from our outside general counsel and has retained Lipis Consulting, Inc. (“LCI”), a compensation consulting firm, which provides advice directly to the Compensation Committee. Historically, the base salary, bonus structure and the long-term equity compensation of our executive officers are governed by the terms of their individual employment agreements (see “-Employment Agreements and Termination of Employment Arrangements”) and we expect that to continue in the future. With respect to our chief executive officer and president and our chief operating officer the Compensation Committee, with input from LCI, establishes target performance levels for incentive bonuses based on a number of factors that are designed to further our executive compensation objectives, including our performance, the compensation received by similarly-situated executive officers at peer group companies, the conditions of the markets in which we operate and the relative earnings performance of peer group companies.

Historically, a factor given considerable weight in establishing bonus performance criteria is Adjusted EPS which is the net income per share of our common stock calculated on a fully-diluted basis in accordance with GAAP, applied on a basis consistent with past periods, as adjusted in the sole discretion of the Compensation Committee to take account of extraordinary or special items.

As explained in greater detail below (see “Employment Agreements and Termination of Employment Arrangements”), pursuant to a September 2012 amendment to Mr. Berman’s employment agreement, commencing in 2013, his annual bonus has been restructured so that part of it is now capped at 300% of his base salary and the performance criteria and vesting are solely within the discretion of the Compensation Committee, which will establish all of the criteria during the first quarter of each fiscal year for that year’s bonus, based upon financial and non-financial factors selected by the Compensation Committee, and another part of his annual performance bonus will be based upon the success of a joint venture entity we initiated in September 2012. The portion of the bonus equal to 200% of base salary is payable in cash and the balance in restricted stock vesting over three years. In addition, the annual grant of $500,000 of restricted stock was changed to $3,500,000 of restricted stock and the vesting criteria was also changed from being solely based upon established EPS targets to being based upon performance standards established by the Compensation Committee during the first quarter of each year.

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On June 11, 2015 we entered into an amended employment agreement with our Chief Operating Officer, John J. (Jack) McGrath, which extends his employment to December 31, 2017. As disclosed in greater detail below, Mr. McGrath’s employment agreement also provides for fixed and adjustable bonuses payable based upon adjusted EPS, which targets are set in the agreement, based upon input from LCI, with the adjustable bonus capped at a maximum of 125% of base salary.

While the Compensation Committee does not establish target performance levels for our chief financial officer, it does consider similar factors when determining such officer’s bonus. We entered into a new employment agreement with Mr. Bennett dated June 11, 2015, which extends his employment to December 31, 2017. The agreement authorizes our Compensation Committee and Board of Directors to award an annual bonus to Mr. Bennett in an amount as the Committee or Board determines at its discretion.

The current employment agreements with our named executive officers also gives the Compensation Committee the authority to award additional compensation to each of them as it determines in its sole discretion based upon criteria it establishes.

The Compensation Committee also annually reviews the overall compensation of our named executive officers for the purpose of determining whether discretionary bonuses should be granted. In 2015, LCI presented a report to the Compensation Committee comparing our performance, size and executive compensation levels to those of peer group companies. LCI also reviewed with the Compensation Committee the base salaries, annual bonuses, total cash compensation, long-term compensation and total compensation of our senior executive officers relative to those companies. The performance comparison presented to the Compensation Committee each year includes a comparison of our total shareholder return, earnings per share growth, sales, net income (and one-year growth of both measures) to the peer group companies. The Compensation Committee reviews this information along with details about the components of each named executive officer’s compensation.

Peer Group

One of the factors considered by the Compensation Committee is the relative performance and the compensation of executives of peer group companies. The peer group is comprised of a group of the companies selected in conjunction with LCI that we believe provides relevant comparative information, as these companies represent a cross-section of publicly-traded companies with product lines and businesses similar to our own throughout the comparison period. The composition of the peer group is reviewed annually and companies are added or removed from the group as circumstances warrant. For the last fiscal year, the peer group companies utilized for executive compensation analysis, which, except for the removal of Kid Brands, Inc., remained the same as in the previous year were:

● Activision Blizzard, Inc.

● Electronic Arts, Inc.

● Hasbro, Inc.

● Leapfrog Enterprises, Inc.

● Mattel, Inc.

● Take-Two Interactive, Inc.

Elements of Executive Compensation

The compensation packages for the Company’s senior executives have both performance-based and non-performance based elements. Based on its review of each named executive officer’s total compensation opportunities and performance, and our performance, the Compensation Committee determines each year’s compensation in the manner that it considers to be most likely to achieve the objectives of our executive compensation program. The specific elements, which include base salary, annual cash incentive compensation and long-term equity compensation, are described below.

The Compensation Committee has negative discretion to adjust performance results used to determine annual incentive and the vesting schedule of long-term incentive payouts to the named executive officers. The Compensation Committee also has discretion to grant bonuses even if the performance targets were not met. 

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Base Salary

Mr. Berman received compensation in 2015 pursuant to the terms of his employment agreement; Mr. McGrath became an executive officer on August 23, 2011 pursuant to the terms of an amendment to his employment agreement and Mr. Bennett entered into a new employment agreement on October 21, 2011 which was extended in 2015. As discussed in greater detail below, the employment agreement for Mr. Berman was to expire on December 31, 2010 and Mr. Bennett’s employment agreement expired on December 31, 2013. Effective November 11, 2010, Mr. Berman entered into an amended and restated employment agreement. Pursuant to the terms of their employment agreements as in effect on December 31, 2013, Messrs. Berman, McGrath, and Bennett each receive a base salary which is increased automatically each year by $25,000 for Mr. Berman and $15,000 for each of Messrs. McGrath and Bennett pursuant to the terms of their respective employment agreements. Mr. Bennett’s extended employment agreement, which now expires in 2017, does not provide for automatic annual increases in base salary. Any further increase in base salary, as the case may be, is determined by the Compensation Committee based on a combination of two factors. The first factor is the Compensation Committee’s evaluation of the salaries paid in peer group companies to executives with similar responsibilities. The second factor is the Compensation Committee’s evaluation of the executive’s unique role, job performance and other circumstances. Evaluating both of these factors allows us to offer a competitive total compensation value to each individual named executive officer taking into account the unique attributes of, and circumstances relating to, each individual, as well as marketplace factors. This approach has allowed us to continue to meet our objective of offering a competitive total compensation value and attracting and retaining key personnel. Based on its review of these factors, the Compensation Committee determined not to increase the base salary of each of Messrs. Berman, McGrath and Bennett above the contractually required minimum increase in 2015 as unnecessary to maintain our competitive total compensation position in the marketplace. 

Annual Cash Incentive Compensation

The function of the annual cash bonus is to establish a direct correlation between the annual incentives awarded to the participants and our financial performance. This purpose is in keeping with our compensation program’s objective of aligning a significant portion of each executive’s total compensation with our annual performance and the interests of our shareholders.

The employment agreements as in effect on January 1, 2015 for Messrs. Berman and McGrath provided for an incentive cash bonus award based on a percentage of each participant’s base salary if the performance goals set by the Compensation Committee are met for that year. The employment agreements mandated that the specific criteria to be used is growth in earnings per share and the Compensation Committee sets the various target thresholds to be met to earn increasing amounts of the bonus up to a maximum of 200% of base salary for Mr. Berman and 125% for Mr. McGrath, although the Compensation Committee has the ability to increase the maximum in its discretion. Commencing in 2012, the Compensation Committee is required to meet to establish criteria for earning the annual performance bonus (and with respect to Mr. Berman, any additional annual performance bonus) during the first quarter of the year.

The employment agreements as in effect on January 1, 2015 for Messrs. Berman, McGrath and Bennett contemplate that the Compensation Committee may grant discretionary bonuses in situations where, in its sole judgment, it believes they are warranted. The Compensation Committee approaches this aspect of the particular executive’s compensation package by looking at the other components of the executive’s aggregate compensation and then evaluating if any additional compensation is appropriate to meet our compensation goals. As part of this review, the Compensation Committee, with significant input from LCI, collects information about the total compensation packages in our peer group and various indicia of performance by the peer group such as sales, one-year sales growth, net income, one-year net income growth, market capitalization, size of companies, one- and three-year stockholder returns, etc. and then compares such data to our corresponding performance data. Based upon our philosophy of executive compensation described above, in light of the Company’s continuing turn-around and success in 2015, the Compensation Committee, after not approving any discretionary bonuses in 2012 and 2013, approved discretionary bonuses for 2015 to Messrs. Berman, McGrath and Bennett in the amounts of $150,000, $50,000 and $142,500, respectively.

Long-Term Compensation

Long-term compensation is an area of particular emphasis in our executive compensation program, because we believe that these incentives foster the long-term perspective necessary for our continued success. Again, this emphasis is in keeping with our compensation program objective of aligning a significant portion of each executive’s total compensation with our long-term performance and the interests of our shareholders.

Historically, our long-term compensation program has focused on the granting of stock options that vested over time. However, commencing in 2006 we began shifting the emphasis of this element of compensation and we currently favor the issuance of restricted stock awards. The Compensation Committee believes that the award of full-value shares that vest over time is consistent with our overall compensation philosophy and objectives as the value of the restricted stock varies based upon the performance of our common stock, thereby aligning the interests of our executives with our shareholders. The Compensation Committee has also determined that awards of restricted stock are anti-dilutive as compared to stock options inasmuch as it feels that less restricted shares have to be granted to match the compensation value of stock options.

Mr. Berman’s 2010 amended and restated employment provides for annual grants of $500,000 of restricted stock which vest in equal annual installments through January 1, 2017, which is one year following the life of the agreement, subject to meeting the 3% vesting condition, as defined in the agreement. As described in greater detail below, pursuant to the 2012 amendment, commencing in 2013, this bonus changed to $3,500,000 of restricted stock to be earned based upon performance targets established by the Compensation Committee during the first quarter of each year. Mr. McGrath’s amended employment agreement provides for annual grants of $75,000 of restricted stock which vests in equal installments over three years subject to meeting certain EPS milestones. The Company did not meet the vesting requirements contained in either employment agreement for 2014 so both of Messrs. Berman and McGrath forfeited their stock awards for 2014. For 2015, due to missed milestones, Mr. Berman forfeited all but 7.5% of his annual grant and Mr. McGrath forfeited all of his annual grant. As explained in greater detail below (see “ Employment Agreements and Termination of Employment Arrangements ”), Mr. Berman’s employment agreement also provides for an annual performance bonus. Commencing in 2012, the criteria for earning such bonus are to be established by the Compensation Committee. This bonus, if earned, is payable partially in cash and partially in shares of restricted common stock. Mr. Berman’s agreement also provides for an additional annual performance bonus, payable solely in shares of restricted stock, which can be earned by Mr. Berman if the Company’s performance meets certain criteria to be established by the Compensation Committee during the first quarter of each year.

After a review of all of the factors discussed above, the Compensation Committee determined that, in keeping with our compensation objectives, and in light of the discretionary bonus already approved, Mr. Berman was not awarded a long term bonus for 2015.

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Other Benefits and Perquisites

Our executive officers participate in the health and dental coverage, life insurance, paid vacation and holidays, 401(k) retirement savings plans and other programs that are generally available to all of the Company’s employees.

The provision of any additional perquisites to each of the named executive officers is subject to review by the Compensation Committee. Historically, these perquisites include payment of an automobile allowance and matching contributions to a 401(k) defined contribution plan. In 2015, the named executive officers were granted the following perquisites:  automobile allowance and 401(k) plan matching contribution. We value perquisites at their incremental cost to us in accordance with SEC regulations.

We believe that the benefits and perquisites we provide to our named executive officers are within competitive practice and customary for executives in key positions at comparable companies. Such benefits and perquisites serve our objective of offering competitive compensation that allows us to continue to attract, retain and motivate highly talented people to these critical positions, ultimately providing a substantial benefit to our shareholders.

Change of Control/Termination Agreements

We recognize that, as with any public company, it is possible that a change of control may take place in the future. We also recognize that the threat or occurrence of a change of control can result in significant distractions of key management personnel because of the uncertainties inherent in such a situation. We further believe that it is essential and in our best interest and the interests of our shareholders to retain the services of our key management personnel in the event of the threat or occurrence of a change of control and to ensure their continued dedication and efforts in such event without undue concern for their personal financial and employment security. In keeping with this belief and its objective of retaining and motivating highly talented individuals to fill key positions, which is consistent with our general compensation philosophy, the employment agreement for named chief executive officers contain provisions which guarantee specific payments and benefits upon a termination of employment without good reason following a change of control of the Company. In addition, the employment agreements also contain provisions providing for certain lump-sum payments in the event the executive is terminated without “cause” or if we materially breach the agreement leading the affected executive to terminate the agreement for good reason.

Additional details of the terms of the change of control agreements and termination provisions outlined above are provided below.

Impact of Accounting and Tax Treatments

Section 162(m) of the Internal Revenue Code (the “Code”) prohibits publicly held companies like us from deducting certain compensation to any one named executive officer in excess of $1,000,000 during the tax year. However, Section 162(m) provides that, to the extent that compensation is based on the attainment of performance goals set by the Compensation Committee pursuant to plans approved by the Company’s shareholders, the compensation is not included for purposes of arriving at the $1,000,000. 

The Company, through the Compensation Committee, intends to attempt to qualify executive compensation as tax deductible to the extent feasible and where it believes it is in our best interests and in the best interests of our shareholders. However, the Compensation Committee does not intend to permit this arbitrary tax provision to distort the effective development and execution of our compensation program. Thus, the Compensation Committee is permitted to and will continue to exercise discretion in those instances in which mechanistic approaches necessary to satisfy tax law considerations could compromise the interests of our shareholders. In addition, because of the uncertainties associated with the application and interpretation of Section 162(m) and the regulations issued thereunder, there can be no assurance that compensation intended to satisfy the requirements for deductibility under Section 162(m) will in fact be deductible.

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Compensation Risk Management

As part of its annual review of our executive compensation program, the Compensation Committee reviews with management the design and operation of our incentive compensation arrangements for senior management, including executive officers, to determine if such programs might encourage inappropriate risk-taking that could have a material adverse effect on the Company. The Compensation Committee considered, among other things, the features of the Company’s compensation program that are designed to mitigate compensation-related risk, such as the performance objectives and target levels for incentive awards (which are based on overall Company performance), and its compensation recoupment policy. The Compensation Committee also considered our internal control structure which, among other things, limits the number of persons authorized to execute material agreements, requires approval of our board of directors for matters outside of the ordinary course and its whistle blower program. Based upon the above, the Compensation Committee concluded that any risks arising from the Company’s compensation plans, policies and practices are not reasonably likely to have a material adverse effect on the Company.

Impact of Shareholder Advisory Vote

At our 2015 annual meeting, our shareholders approved our current executive compensation with over 63% of all shares actually voting on the issue (over 38% of all outstanding shares whether or not voting) affirmatively giving their approval. Accordingly, we believe that this vote ratifies our executive compensation philosophy and policies, as currently adopted and implemented, and we intend to continue such philosophy and policies.

Compensation Committee Report

The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis (the “CD&A”) for the year ended December 31, 2015. In reliance on the reviews and discussions referred to above, the compensation committee recommended to the board, and the board has approved, that the CD&A be furnished in the annual report on Form 10-K for the year ended December 31, 2015.

By the Compensation Committee of the Board of Directors: 

Michael S. Sitrick, Chairman

Rex H. Poulsen, Member

Summary Compensation Table– 2013-2015

Name and  Principal  Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($) (1)	Total ($)
Stephen G. Berman	2015	1,240,000	1,241,200	262,500	―	―	―	30,000	2,773,700
Chief Executive Officer,	2014	1,215,000	1,450,000	―	—	—	—	30,000	2,695,000
President and Secretary	2013	1,190,000	―	―	—	—	—	30,750	1,220,750
John J. McGrath	2015	660,000	566,600	69,378	―	―	―	26,400	1,322,378
Chief Operating Officer	2014	645,000	425,000	―	—	—	—	26,400	1,096,400
	2013	630,000	—	―	—	―	―	27,150	657,150
Joel M. Bennett	2015	475,000	142,500	―	―	―	―	24,000	641,500
Executive Vice President	2014	460,000	207,000	—	—	—	—	24,000	691,000
and Chief Financial Officer	2013	450,000	―	—	—	—	—	24,750	474,750

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(1) Represents automobile allowances paid in the amount of $18,000, $14,400 and $12,000 to each of Messrs. Berman, McGrath, and Bennett, respectively, for 2013, 2014 and 2015; amount also includes matching contributions made by us to the Named Officer’s 401(k) defined contribution plan in the amount of $12,750, $12,000 and $12,000, respectively, for 2013, 2014 and 2015, for each of Messrs. Berman, McGrath and Bennett. See “Employee Pension Plan.”

The following table sets forth certain information regarding all equity-based compensation awards outstanding as of December 31, 2015 by the Named Officers:

Outstanding Equity Awards At Fiscal Year-end

	Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options Exercisable (#)	Number of Securities Underlying Unexercised Options Unexercisable (#)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number  of Shares or Units of Stock that Have Not  Vested (#)	Market Value of Shares or Units of Stock that Have Not Vested ($) (1)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Stephen G. Berman	—	—	—	—	—	43,618	$	347,199	—	—
John J. McGrath	—	—	—	—	—	10,143		80,738	—	—
Joel M. Bennett	—	—	—	—	—	—		—	—	—

(1) The product of (x) $7.96 (the closing sale price of the common stock on December 31, 2015) multiplied by (y) the number of unvested restricted shares outstanding.

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The following table sets forth certain information regarding amount realized upon the vesting and exercise of any equity-based compensation awards during 2015 by the Named Officers:

Options Exercises And Stock Vested-2015

	Option Awards				Stock Awards
Name	Number of Shares Acquired on Exercise (#)		Value Realized on Exercise ($)		Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)
Stephen G. Berman		—		—		—		—
John J. McGrath		—		—		—		—
Joel M. Bennett		—		—		—		—

Potential Payments upon Termination or Change in Control

The following tables describe potential payments and other benefits that would have been received by each Named Officer at, following or in connection with any termination, including, without limitation, resignation, severance, retirement or a constructive termination of such Named Officer, or a change in control of our Company or a change in such Named Officer’s responsibilities on December 31, 2015. The potential payments listed below assume that there is no earned but unpaid base salary at December 31, 2015.

Stephen G. Berman

Upon Retirement

Quits For “Good Reason” (2)

Upon Death

Upon “Disability” (3)

Termination Without “Cause”

Termination For “Cause” (4)

Involuntary Termination In Connection with Change of Control(5)

Base Salary

$

―

$

3,720,000

$

―

$

―

$

3,720,000

$

―

$

5,681,431

(6)

Restricted Stock - Performance-Based

―

―

―

―

―

―

―

Annual Cash Incentive Award (1)

―

―

―

―

―

―

―

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(1) Assumes that if the Named Officer is terminated on December 31, 2015, they were employed through the end of the incentive period.

(2) Defined as (i) our violation or failure to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by us, or (ii) the material change in the nature, titles or scope of the duties, obligations, rights or powers of the Named Officer’s employment resulting from any action or failure to act by us.

(3) Defined as a Named Officer’s inability to perform his duties by reason of any disability or incapacity (due to any physical or mental injury, illness or defect) for an aggregate of 180 days in any consecutive 12-month period.

(4) Defined as (i) the Named Officer’s conviction of, or entering a plea of guilty or nolo contendere (which plea is not withdrawn prior to its approval by the court) to, a felony offense and either the Named Officer’s failure to perfect an appeal of such conviction prior to the expiration of the maximum period of time within which, under applicable law or rules of court, such appeal may be perfected or, if he does perfect such an appeal, the sustaining of his conviction of a felony offense on appeal; or (ii) the determination by our Board of Directors, after due inquiry, based upon convincing evidence, that the Named Officer has:

(A) committed fraud against, or embezzled or misappropriated funds or other assets of, our Company (or any subsidiary);

(B) violated, or caused our Company (or any subsidiary) or any of our officers, employees or other agents, or any other individual or entity to violate, any material law, rule, regulation or ordinance, or any material written policy, rule or directive of our Company or our Board of Directors;

(C) willfully, or because of gross or persistent inaction, failed properly to perform his duties or acted in a manner detrimental to, or adverse to our interests; or

(D) violated, or failed to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by him under his employment agreement with us;

and that, in the case of any violation or failure referred to in clause (B), (C) or (D), above, such violation or failure has caused, or is reasonably likely to cause, us to suffer or incur a substantial casualty, loss, penalty, expense or other liability or cost.

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(5) Section 280G of the Code disallows a company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a 20% excise tax on any person who receives excess parachute payments. As discussed above, Mr. Berman is entitled to certain payments upon termination of his employment, including termination following a change in control of our Company. Under the terms of his employment agreement (see “ - Employment Agreements”), Mr. Berman is not entitled to any payments that would be an excess parachute payment, and such payments are to be reduced by the least amount necessary to avoid the excise tax. Accordingly, our tax deduction would not be disallowed under Section 280G of the Code, and no excise tax would be imposed under Section 4999 of the Code.

(6)  Under the terms of Mr. Berman’s employment agreement (see “ - Employment Agreements”), if a change of control occurs and within two years thereafter Mr. Berman is terminated without “Cause” or quits for “Good Reason”, then he has the right to receive a payment equal to 2.99 times his then current base amount as defined in the Code (which was $1,900,144 in 2015).

John J. McGrath

Upon Retirement

Quits For “Good Reason” (2)

Upon Death

Upon “Disability” (3)

Termination Without “Cause”

Termination For “Cause” (4)

Involuntary Termination In Connection with Change of Control(5)

Base Salary

$

―

$

1,320,000

$

―

$

―

$

1,320,000

$

―

$

1,320,000

(6)

Restricted Stock - Performance-Based

―

―

―

―

―

―

―

Annual Cash Incentive Award (1)

―

―

―

―

―

―

―

(1) Assumes that if the Named Officer is terminated on December 31, 2015, they were employed through the end of the incentive period.

(2) Defined as (i) our violation or failure to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by us, or (ii) the material change in the nature, titles or scope of the duties, obligations, rights or powers of the Named Officer’s employment resulting from any action or failure to act by us.

(3) Defined as a Named Officer’s inability to perform his duties by reason of any disability or incapacity (due to any physical or mental injury, illness or defect) for an aggregate of 180 days in any consecutive 12-month period.

(4) Defined as (i) the Named Officer’s conviction of, or entering a plea of guilty or nolo contendere (which plea is not withdrawn prior to its approval by the court) to, a felony offense and either the Named Officer’s failure to perfect an appeal of such conviction prior to the expiration of the maximum period of time within which, under applicable law or rules of court, such appeal may be perfected or, if he does perfect such an appeal, the sustaining of his conviction of a felony offense on appeal; or (ii) the determination by our Board of Directors, after due inquiry, based on convincing evidence, that the Named Officer has:

(A) committed fraud against, or embezzled or misappropriated funds or other assets of, our Company (or any subsidiary);

(B) violated, or caused our Company (or any subsidiary) or any of our officers, employees or other agents, or any other individual or entity to violate, any material law, rule, regulation or ordinance, or any material written policy, rule or directive of our Company or our Board of Directors;

(C) willfully, or because of gross or persistent inaction, failed properly to perform his duties or acted in a manner detrimental to, or adverse to our interests; or

(D) violated, or failed to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by him under his employment agreement with us;

and that, in the case of any violation or failure referred to in clause (B), (C) or (D), above, such violation or failure has caused, or is reasonably likely to cause, us to suffer or incur a substantial casualty, loss, penalty, expense or other liability or cost.

86

(5) Section 280G of the Code disallows a company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a 20% excise tax on any person who receives excess parachute payments. As discussed above, Mr. McGrath is entitled to certain payments upon termination of his employment, including termination following a change in control of our Company. Under the terms of his employment agreement (see “ - Employment Agreements”), Mr. McGrath is not entitled to any payments that would be an excess parachute payment, and such payments are to be reduced by the least amount necessary to avoid the excise tax. Accordingly, our tax deduction would not be disallowed under Section 280G of the Code, and no excise tax would be imposed under Section 4999 of the Code.

(6)  Under the terms of Mr. McGrath’s employment agreement (see “ - Employment Agreements”), if a change of control occurs and within two years thereafter Mr. McGrath is terminated without “Cause” or quits for “Good Reason”, then he has the right to receive a payment equal to the greater of two times his then current base salary or the payments due for the remainder of the term of his employment agreement.

Joel M. Bennett

Upon Retirement

Quits For “Good Reason” (2)

Upon Death

Upon “Disability” (3)

Termination Without “Cause”

Termination For “Cause” (4)

Involuntary Termination In Connection with Change of Control(5)

Base Salary

$

―

$

950,000

$

―

$

―

$

950,000

$

―

$

950,000

(6)

Restricted Stock - Performance-Based

―

―

―

―

―

―

―

Annual Cash Incentive Award (1)

―

―

―

―

―

―

―

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(1) Assumes that if the Named Officer is terminated on December 31, 2015, they were employed through the end of the incentive period.

(2) Defined as (i) our violation or failure to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by us, or (ii) the material change in the nature, titles or scope of the duties, obligations, rights or powers of the Named Officer’s employment resulting from any action or failure to act by us.

(3) Defined as a Named Officer’s inability to perform his duties by reason of any disability or incapacity (due to any physical or mental injury, illness or defect) for an aggregate of 180 days in any consecutive 12-month period.

(4) Defined as (i) the Named Officer’s conviction of, or entering a plea of guilty or nolo contendere (which plea is not withdrawn prior to its approval by the court) to, a felony offense and either the Named Officer’s failure to perfect an appeal of such conviction prior to the expiration of the maximum period of time within which, under applicable law or rules of court, such appeal may be perfected or, if he does perfect such an appeal, the sustaining of his conviction of a felony offense on appeal; or (ii) the determination by our Board of Directors, after due inquiry, based on convincing evidence, that the Named Officer has:

(A) committed fraud against, or embezzled or misappropriated funds or other assets of, our Company (or any subsidiary);

(B) violated, or caused our Company (or any subsidiary) or any of our officers, employees or other agents, or any other individual or entity to violate, any material law, rule, regulation or ordinance, or any material written policy, rule or directive of our Company or our Board of Directors;

(C) willfully, or because of gross or persistent inaction, failed properly to perform his duties or acted in a manner detrimental to, or adverse to our interests; or

(D) violated, or failed to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by him under his employment agreement with us;

and that, in the case of any violation or failure referred to in clause (B), (C) or (D), above, such violation or failure has caused, or is reasonably likely to cause, us to suffer or incur a substantial casualty, loss, penalty, expense or other liability or cost.

88

(5) Section 280G of the Code disallows a company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a 20% excise tax on any person who receives excess parachute payments. As discussed above, Mr. Bennett is entitled to certain payments upon termination of his employment, including termination following a change in control of our Company. Under the terms of his employment agreement (see “Employment Agreements”), Mr. Bennett is not entitled to any payments that would be an excess parachute payment, and such payments are to be reduced by the least amount necessary to avoid the excise tax. Accordingly, our tax deduction would not be disallowed under Section 280G of the Code, and no excise tax would be imposed under Section 4999 of the Code.

(6) Under the terms of Mr. Bennett’s employment agreement (see “Employment Agreements”), if a change of control occurs and within two years thereafter Mr. Bennett is terminated without “Cause” or quits for “Good Reason”, then he has the right to receive a payment equal to the greater of two times his then current base salary or the payments due for the remainder of the term of his employment agreement.

Compensation of Directors

Analogous to our executive compensation philosophy, it is our desire to similarly compensate our non-employee directors for their services in a way that will serve to attract and retain highly qualified members. As changes in the securities laws require greater involvement by, and places additional burdens on, a company’s directors it becomes even more necessary to locate and retain highly qualified directors. As such, after consulting with LCI, the Compensation Committee developed and the Board approved a structure for the compensation package of our non-employee directors so that the total compensation package of our non-employee directors would be at approximately the median total compensation package for non-employee directors in our peer group.

In December 2009, our board of directors, after consulting with our prior consultant, changed the compensation package  for non-employee directors as of January 1, 2010 by (i) increasing the annual cash stipend to $75,000, (ii) eliminating meeting fees for attendance at both board and committee meetings, (iii) increasing the annual fees paid to committee chairs and the members of the audit committee, (iv) decreasing by $25,000 the value of the annual grant of restricted shares of our common stock to $100,000 and (v) imposing minimum share holding requirements. Specifically, the chair of the audit committee receives an annual fee of $30,000, each member of the audit committee receives a $15,000 annual fee (including the chair), the chair of the compensation committee and the nominating and governance committee each receives an annual fee of $15,000 and each member of such committees (including the chair) receives an annual fee of $10,000. Newly-elected non-employee directors will receive a portion of the foregoing annual consideration, prorated according to the portion of the year in which they serve in such capacity.

In February 2010 our board determined the terms for the minimum share holding requirements. Pursuant to the new minimum share holding requirements, each director will be required to hold shares with a value equal to at least two times the average annual cash stipend paid to the director during the prior two calendar years. In determining the value of a director’s share holdings, each option, whether or not in the money, will count as ½ share. To illustrate:  if an average director wishes to sell shares in 2016, he will have to hold shares with a market value of at least $208,000 prior to and following any sale of shares calculated as of the date of the sale, such $208,000 minimum calculated by taking the average cash stipend of $104,000 paid during the prior two years multiplied by two.

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The following table sets forth the compensation we paid to our non-employee directors for our fiscal year ended December 31, 2015:

Director Compensation

Name		Year	Fees  Earned or Paid in Cash ($)	Stock  Awards ($)		Option  Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Murray L. Skala		2015	75,000	100,443	(2)	—	—	—	—	175,443
Peter F. Reilly	(1)	2015	90,000	100,443	(2)	—	—	—	—	190,443
Rex H. Poulsen		2015	145,000	100,443	(2)	—	—	—	—	245,443
Fergus McGovern	(3)	2015	110,000	100,443	(2)	—	—	—	—	210,443
Michael S. Sitrick		2015	100,000	100,443	(2)	—	—	—	—	200,443
Alexander Shoghi	(4)	2015	—	—		—	—	—	—	—

(1)  Mr. Reilly declined to be renominated at the 2015 annual meeting for personal reasons. 

(2) The value of the shares was determined by taking the product of (a) 14,771 shares of restricted stock multiplied by (b) $6.80, the last sales price of our common stock on December 31, 2014, as reported by Nasdaq, the date prior to the date the shares were granted, all of which shares vested on January 1, 2016.

(3)  Mr. McGovern died on February 27, 2016.

(4) Mr. Shoghi was appointed to the board on December 18, 2015. Except in unusual circumstances, directors receive compensation commencing in the January following their election.

Employment Agreements and Termination of Employment Arrangements

In March 2003 we amended and restated our employment agreement with Mr. Berman and we entered into a new amended and restated agreement with Mr. Berman on November 11, 2010. We entered into a new employment agreement with Mr. Bennett on October 31, 2011. We entered into an emended employment agreement with Mr. McGrath on August 23, 2011 when he became our Chief Operating Officer.

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On November 11, 2010 we entered into a second amended and restated employment agreement with Stephen Berman, our President, Chief Executive Officer and Chief Operating Officer. This agreement extended the term of the 2003 agreement to December 31, 2015 from its current termination date of December 31, 2010. The new amended and restated agreement also provides, among other things, new provisions for (i) an annual salary of $1,140,000 in 2011 and annual increases thereafter at the discretion of the Board but no less than $25,000; (ii) an annual restricted stock award of $500,000 of our common stock commencing January 1, 2011, subject to vesting in equal installments through January 1, 2017, except that the vesting of each annual $500,000 award is conditioned on EPS (defined as our net income per share of our common stock, calculated on a fully diluted basis) for the fiscal year in which the shares are issued being equal to minimum EPS as follows: $1.41 for 2011, $1.45 for 2012, $1.49 for 2013, $1.54 for 2014, and $1.59 for 2015. If the minimum EPS vesting condition for the first tranche is not met, then the $500,000 grant lapses, but if the vesting condition is satisfied for the first tranche of the $500,000 grant, then each subsequent tranche of the $500,000 grant will vest; (iii) an annual performance bonus as follows: (x) 2010 bonus (previously established in March 2010) remains unchanged except that 20% of the bonus will be paid in restricted stock which will vest in six equal annual installments of 14.5% of the number of shares, the first on the date in 2011 that the bonus is determined to have been earned, and a seventh and final installment of 13% of the shares on January 1, 2017, and (y) for years commencing January 1, 2011, an amount equal to up to 200% of base salary, to be paid in stock and cash (20-40% in stock, in the percentages set forth on Exhibit E to the agreement), bonus criteria using “Adjusted” EPS growth (as defined in the agreement) to be determined by our Compensation Committee in the first quarter of each fiscal year, except that Adjusted EPS criteria (but not vesting) for 2011 shall range from $1.37 - $1.78 as stated in Exhibit D to the agreement, and shares will vest in equal annual installments commencing with the date the Bonus for a fiscal year is determined to have been earned and thereafter on January 1 in each subsequent year until the final installment on January 1, 2017, and (z) an additional bonus equal to 100% of base salary to be paid entirely in restricted stock; the criteria and vesting schedules to be determined by our Compensation Committee in the first fiscal quarter of each year, using criteria to be selected by such Committee which are in its discretion such as grown in net sales, return on invested capital, growth in free cash flow, total shareholder return (or any combination); (iv) restrictions on sale of our securities such that he cannot sell any shares of our common stock if his shares remaining after a sale are not equal to at least three times his then base salary; (v) life insurance in the amount of $1.5 million; (vi) severance if we terminate the agreement without cause (as defined in the agreement) or Mr. Berman terminates it for Good Reason (as defined in the agreement), in an amount equal to the base salary at termination date multiplied by the number of years and partial years remaining in the term; and (vii) restrictive covenants, change of control provisions and our ownership of certain intellectual property.

On October 19, 2011, we clarified our employment agreement with Mr. Berman and entered into a letter amendment dated October 20, 2011. The clarification corrects and clarifies certain cross references relating to Mr. Berman’s entitlement to severance upon a qualifying termination following a change of control (as defined in his employment agreement). It also clarifies that a material change in the nature and/or scope of the duties, obligations, rights or powers of his employment under the agreement would be deemed to include his ceasing to be the Chief Executive Officer and President of a publicly traded company (one of the standards for determining whether Mr. Berman has “good reason” to terminate his employment under his employment agreement), and further provides that Mr. Berman's post-change of control severance benefits shall be payable upon a qualifying termination of employment within a two year period following a change of control (the agreement originally provided for a one year period).

On September 21, 2012, in connection with our entry into agreements dated September 10, 2012 with NantWorks LLC to form DreamPlay Toys LLC and DreamPlay LLC, all Delaware limited liability companies, we entered into Amendment Number One to Mr. Berman’s Second Amended and Restated Employment Agreement dated November 11, 2012 (as previously modified by the October 20, 2011 letter amendment); DreamPlay Toys LLC will develop, market and sell toys and consumer products incorporating NantWorks’ proprietary iD (iDream) image recognition technology and DreamPlay LLC’s business is the extension of such image recognition technology to non-toy consumer products and applications.

The following description modifies and supersedes, to the extent inconsistent with, the disclosure in the preceding paragraphs. The term of Mr. Berman’s employment agreement has been extended to December 31, 2018 and provides (i) that commencing on January 1, 2013 the amount of the annual restricted stock award shall increase to up to $3.5M, with the vesting of each annual grant to be determined by the Compensation Committee based upon performance criteria it establishes during the first quarter of the year of grant; (ii) commencing with 2013 Mr. Berman can earn an annual performance bonus described below. Part of the annual performance bonus in an amount not exceeding 300% of that year’s base salary can be earned based upon financial and non-financial factors determined annually by the Compensation Committee during the first quarter of each year. The other part of the additional annual performance bonus can be earned in an amount equal to one-half of the cash distributions we receive from DreamPlay LLC, subject to satisfaction of the following three conditions: (1) we have positive net income after deducting the aggregate annual performance bonus, (2) the aggregate annual performance bonus cannot exceed 2.9% of our net income for such year except that if our net income exceeds $385,000 for the year the percentage limitation shall be reduced to 1% and if our net income for the year exceeds $770,000 the percentage limitation is reduced to 0.5% and (3) we have received an aggregate of at least $15 million of net income from DreamPlay Toys LLC and DreamPlay LLC. The amendment also provides (i) that the portion of the annual performance bonus up to an amount equal to 200% of that year’s base salary shall be paid in cash, and any excess over 200% of such base salary shall be paid in shares of restricted stock vesting in equal quarterly installments with the initial installment vesting upon grant and the balance over three years following the award date; (ii) for a life insurance policy of $5 million or such lesser amount we can obtain for an annual premium of up to $10,000; (iii) for the reimbursement of legal fees in negotiating this amendment of up to $25,000, (iv) that the full amount of the payments and benefits payable in the event of a Change in Control (as defined in the employment agreement) shall be paid, even if it triggers an excise tax imposed by the tax code if the net after-tax amount would still be greater than reducing the total payments and benefits to avoid such excise tax, and (vi) the term “Good Reason Event” has been expanded to include a change in the composition of our board of directors where the majority of the directors were not in office on September 15, 2012. This provision would have been triggered if management’s slate of nominee directors at our 2014 Annual Meeting were elected so prior to such Meeting, Mr. Berman waived such provision of his employment agreement with respect to the slate of nominees at such Meeting.  Mr. Berman waived the provision again following our 2015 Annual Meeting.

On August 23, 2011 we entered into an amended employment agreement with John J. (Jack) McGrath whereby he became our Chief Operating Officer. The amended employment agreement, which ran through December 31, 2013, provided for an annual salary of $600,000; an annual increase over the prior year’s base salary of at least $15,000; an annual award of $75,000 of restricted stock, subject to vesting in equal installments over three years, provided, however, that the initial vesting of the first installment of each year’s award is conditioned on “Adjusted” EPS (as defined in the amended agreement) for the fiscal year in which the shares are issued being equal to minimum “Adjusted” EPS as follows: 2011 vesting condition: greater of $1.41 or 3% higher than 2010 “Adjusted” EPS; 2012 vesting: greater of $1.45 or 3% higher than 2011“Adjusted” EPS; and 2013 vesting condition: greater of $1.49 or 3% higher than “Adjusted” 2012 EPS. The amended agreement also provides for an annual bonus opportunity of up to 125% of salary payable 50% in cash and 50% in restricted stock (with a four year vesting) based upon “Adjusted” EPS growth. Bonus targets for 2011 range from $1.37 -$1.78. Commencing in 2012 the bonus targets are to be set by the Compensation Committee.

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On May 15, 2013, we entered a Second Amendment to Mr. John a/k/a Jack McGrath’s Employment Agreement dated March 4, 2010 (effective January 1, 2010), as previously amended on August 23, 2011. Mr. McGrath’s employment agreement has been amended as follows: (i) the term has been extended by two years to December 31, 2015; (ii) it provides for two annual grants of $75,000 worth of restricted shares of common stock of the Company (A) the first such grant to be made on January 1, 2014, which grant shall vest in three annual equal installments as set forth on Exhibit B to the amendment, provided that Adjusted EPS (as defined in the employment agreement) for the 2014 fiscal year is equal to the greater of $1.05 or an amount that is 3% higher than the actual Adjusted EPS for the 2014 fiscal year; (B) the second grant to be made on January 1, 2015, which grant shall vest in two annual equal installments as set forth on Exhibit B to the amendment, provided that Adjusted EPS for the 2015 fiscal year is equal to the greater of $2.10 or an amount that is 3% higher than the actual Adjusted EPS for the 2015 fiscal year; and (iii) in each of 2014 and 2015 Mr. McGrath can earn an annual performance bonus of up to 125% of his then base salary based upon such financial (e.g., growth in EPS, return on equity, growth in the Common Stock price) and non-financial (e.g., organic growth, personnel development) factors determined annually by the Compensation Committee of the Board of Directors during the first quarter of the relevant calendar year for which the annual performance bonus criteria are being established; one-half of such bonus shall be paid in cash, and one-half in shares of restricted common stock, which shall vest in two equal annual installments, the first installment of which shall vest on the Annual Performance Bonus Award Date (as defined in the employment agreement) and thereafter on January 1 in each subsequent year until the final vesting date on January 1, 2017.  On June 11, 2016, we extended Mr. McGrath’s employment agreement through December 31, 2017.

On October 21, 2011, we entered into an employment agreement with Joel M. Bennett, the Company’s Executive Vice President and Chief Financial Officer, with a term ending on December 31, 2013. Pursuant to the new agreement, Mr. Bennett is entitled to an annual base salary of $420,000, to be increased annually by at least $15,000 over the prior year’s base salary, and will be eligible at the discretion of the Compensation Committee to receive bonuses or other compensation in the form of cash or equity-based awards upon the achievement of performance goals determined by the Board or the Compensation Committee. In the event of Mr. Bennett’s termination of employment by the Company without “cause” or by Mr. Bennett for “good reason,” in each case other than within two years following a “change in control” (each as defined in the agreement), Mr. Bennett would be entitled to receive, in addition to accrued benefits, cash severance equal to the amount of base salary payable for the remainder of his term and continuation of his medical, hospitalization and dental insurance through the remainder of his term. In the event of Mr. Bennett’s termination of employment by the Company without “cause” or by Mr. Bennett for “good reason” within two years following a “change of control,” Mr. Bennett would be entitled to receive, in addition to accrued benefits, severance equal to the higher of two times his annual base salary and his base salary payable for the remainder of his term.

On February 18, 2014, we entered into a Continuation and Extension of Term of Employment Agreement with respect to Mr. Joel M. Bennett’s Employment Agreement dated October 21, 2011 such that it is deemed to have been renewed and continued from January 1, 2014 without interruption and it was extended through December 31, 2015.  On June 11, 2016, we extended Mr. Bennett’s employment agreement through December 31, 2017.

The foregoing is only a summary of the material terms of our employment agreements with the Named Officers. For a complete description, copies of such agreements are annexed herein in their entirety as exhibits or are otherwise incorporated herein by reference.

On October 19, 2011, our Board of Directors approved the material terms of and adoption of our Company’s Change in Control Severance Plan (the “Severance Plan”), which applies to certain of our key employees. None of our named executive officers participate in the Severance Plan. The Severance Plan provides that if, within the two year period immediately following the “change in control” date (as defined in the Severance Plan), a participant has a qualifying termination of employment, the participant will be entitled to severance equal to a multiple of monthly base salary, which multiple is the greater of (i) the number of months remaining in the participant’s term of employment under his or her employment agreement and (ii) a number ranging between 12 and 18; accelerated vesting of all unvested equity awards; and continued health care coverage for the number of months equal to the multiple used to determine the severance payment.

Employee Benefits Plan

We sponsor for our U.S. employees (including the Named Officers), a defined contribution plan under Section 401(k) of the Internal Revenue Code. The Plan provided that employees may defer up to 50% of their annual compensation subject to annual dollar limitations, and that we will make a matching contribution equal to 100% of each employee’s deferral, up to 5% of the employee’s annual compensation. Company matching contributions, which vest immediately, totaled $2.1 million, $2.1 million and $2.2 million for 2013, 2014 and 2015, respectively.

Compensation Committee Interlocks and Insider Participation

None of our executive officers has served as a director or member of a compensation committee (or other board committee performing equivalent functions) of any other entity, one of whose executive officers served as a director or a member of our Compensation Committee.

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Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 The following table sets forth certain information as of March 4, 2016 with respect to the beneficial ownership of our common stock by (1) each person known by us to own beneficially more than 5% of the outstanding shares of our common stock, (2) each of our directors, (3) each of our executive officers named in the Summary Compensation Table set forth under the caption “Executive Compensation”, below, and (4) all our directors and executive officers as a group.

Name and Address of Beneficial Owner(1)(2)	Amount and Nature of Beneficial Ownership (3)		Percent of Outstanding Shares(4)
Dr. Patrick Soon-Shiong	4,700,676	(5)	21.5
AQR Capital Management, LLC	1,866,373	(6)	9.2
Dimensional Fund Advisors LP	1,458,842	(7)	7.2
Oasis Management Company Ltd.	3,531,038	(8)	15.5
Franklin Resources, Inc.	2,284,540	(9)	11.2
Wolverine Asset Management, LLC	1,735,621	(10)	7.9
Pine River Capital Management L.P.	1,649,382	(11)	8.1
Citadel Advisors LLC	2,027,938	(12)	9.1
Geode Capital Management, LLC	1,428,230	(13)	7.0
Whitebox Advisors, LLC	1,315,693	(14)	6.1
Steelhead Partners, LLC	2,073,667	(15)	9.3
Renaissance Technologies LLC	1,820,725	(16)	9.0
Stephen G. Berman	615,283	(17)	3.0
Rex H. Poulsen	59,686	(18)	*
Michael S. Sitrick	62,313	(19)	*
Murray L. Skala	95,641	(20)	*
Joel M. Bennett	37,866		*
John J. McGrath	32,800	(21)	*
Alexander Shoghi	12,542	(22)	*
All directors and executive officers as a group (7 persons)	916,131		4.5	%

______________

* Less than 1% of our outstanding shares.

(1)	Unless otherwise indicated, such person’s address is c/o JAKKS Pacific, Inc., 2951 28th Street, Santa Monica, California 90405.
(2)	The number of shares of common stock beneficially owned by each person or entity is determined under the rules promulgated by the Securities and Exchange Commission. Under such rules, beneficial ownership includes any shares as to which the person or entity has sole or shared voting power or investment power. The percentage of our outstanding shares is calculated by including among the shares owned by such person any shares which such person or entity has the right to acquire within 60 days after March 4, 2016. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of such shares.
(3)	Except as otherwise indicated, exercises sole voting power and sole investment power with respect to such shares.
(4)	Does not include any shares of common stock issuable upon the conversion of $100.0 million of our 4.25% convertible senior notes due 2018, initially convertible at the rate of 114.3674 shares of common stock per $1,000 principal amount at issuance of the notes (but subject to adjustment under certain circumstances as described in the notes) nor any shares of common stock issuable upon the conversion of $115.0 million of our 4.875% convertible senior notes due 2020, initially convertible at the rate of 103.7613 shares of common stock per $1,000 principal amount at issuance of the notes (but subject to adjustment under certain circumstances as described in the notes). Does include 3,112,840 shares of common stock repurchased by the Company under a prepaid forward purchase contract under which no shares have been returned to the Company.
(5)	The address of Dr. Patrick Soon-Shiong is 10182 Culver Blvd., Culver City, CA 90232. Includes 1,500,000 shares underlying a warrant owned by an affiliate. Except for 239,622 shares, and the shares underlying the warrant, all of the shares are owned jointly with California Capital Z, LLC. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13D/A filed on November 25, 2015 and a Form 4 filed on March 4, 2016.
(6)	The address of AQR Capital Management, LLC is Two Greenwich Plaza, Greenwich, CT 06830. Possesses joint voting and dispositive power with respect to all of such shares and certain of the reported shares underlie presently convertible notes. All the information presented in this Item with respect to this beneficial owner, including the percentage ownership since the amount of derivative securities was not disclosed, was extracted solely from the Schedule 13G filed on February 16, 2016.
(7)	The address of Dimensional Fund Advisors LP (formerly known as Dimensional Fund Advisors, Inc.) is Building One, 6300 Bee Cove Road, Austin, TX 78746. Possesses sole voting power over 1,446,853 shares and sole dispositive power over 1,458,842 shares. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on February 9, 2016.

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(8)	The address of Oasis Management Company Ltd. is c/o Oasis Management (Hong Kong) LLC, 21/F Man Yee Building, 68 Des Voeux Road, Central, Hong Kong. Possesses joint voting and dispositive power over with respect to all of such shares. 2,339,885 of such shares underlie presently convertible notes. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13D/A filed on October 27, 2015.
(9)	The address of Franklin Resources, Inc. is One Franklin Parkway, San Mateo, CA 94403. Sole voting and dispositive power is held by Franklin Templeton Investments Corp. (2,097,040 shares) and Templeton Investment Counsel, LLC (187,500 shares). All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on December 10, 2015.
(10)	The address of Wolverine Asset Management, LLC is175 West Jackson Blvd., Suite 340, Chicago Illinois 60604. Possesses joint voting and dispositive power with respect to 1,704,621 of such shares (the balance is held jointly by other related parties) and all which shares underlie presently convertible notes. An additional 31,000 shares underlie options. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on February 16, 2016.
(11)	The address of Pine River Capital Management L.P. is 601 Carlson Pkwy, Suite 330, Minnetonka, MN 55305; Attn: Brian Taylor. Possesses joint voting and dispositive power with respect to all of such shares. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on February 5, 2016.
(12)	The address of Citadel Advisors, LLC is 131 S. Dearborn Street, 32nd Floor, Chicago, Illinois 60603. Possesses joint voting and dispositive power with respect to 1,970,538 of such shares (the balance is held jointly by other related parties), all of which share underlie options and/or other convertible securities. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on February 16, 2016.
(13)	The address of Geode Capital Management, LLC is One Post Office Square, 20th Floor, Boston, MA 02109. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on February 11, 2016.
(14)	The address of Whitebox Advisors, LLC is 3033 Excelsior Boulevard, Suite 300, Minneapolis, MN 55416. Possesses joint voting and dispositive power with respect to all of such shares and all of the reported shares underlie presently convertible notes. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on August 12, 2015.
(15)	The address of Steelhead Partners, LLC is 333 108th Avenue NE, Suite 2010, Bellevue, WA 98004. Possesses sole voting and dispositive power with respect to all of such shares and all of the reported shares underlie presently convertible notes. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G filed on February 12, 2016.
(16)	The address of Renaissance Technologies LLC is 800 Third Avenue, New York, NY 10022. Possesses sole voting power with respect to 1,799,107 shares, sole dispositive power with respect to 1,819,939 shares and shared dispositive power for 786 shares. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G filed on February 12, 2016.

(17)	Includes 439,698 shares of common stock issued on January 1, 2016 pursuant to the terms of Mr. Berman’s January 1, 2003 Employment Agreement (as amended to date), which shares are further subject to the terms of our January 1, 2016 Restricted Stock Award Agreement with Mr. Berman (the “Berman Agreement”). The Berman Agreement provides that Mr. Berman will forfeit his rights to some or all 439,698 shares unless certain conditions precedent are met prior to January 1, 2017, as described in the Berman Agreement, whereupon the forfeited shares will become authorized but unissued shares of our common stock. Also includes 18,238 shares granted on February 11, 2011 representing the stock component of his 2010 performance bonus which vest in seven tranches over six years, with each of the first six tranches equal to 14.5% of the total grant, and a seventh tranche equal to 13% of the total grant. The initial tranche vested on February 11, 2011 with each succeeding tranche vesting on January 1 of each year commencing with January 1, 2012 with the final tranche vesting on January 1, 2017. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(18)	Consists of 59,686 shares of Common Stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which 12,542 of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2017. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(19)	Includes 14,771 shares of Common Stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which all of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2017. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(20)	Consists of 83,099 shares of Common Stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which 12,542 of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2017. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(21)	Includes 9,422 shares of common stock issued on January 1, 2016 pursuant to the terms of Mr. McGrath’s March 4, 2010 Employment Agreement (as amended to date), which shares are further subject to the terms of our January 1, 2016 Restricted Stock Award Agreement with Mr. McGrath (the “McGrath Agreement”). The McGrath Agreement provides that Mr. McGrath will forfeit his rights to some or all 9,422 shares unless certain conditions precedent are met prior to January 1, 2017, as described in the McGrath Agreement, whereupon the forfeited shares will become authorized but unissued shares of our common stock. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(22)	Consists of 12,542 shares of common stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which all of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2017. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.

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Item 13.  Certain Relationships and Related Transactions, and Director Independence

(a)  Transactions with Related Persons

One of our directors, Murray L. Skala, is a partner in the law firm of Feder Kaszovitz LLP, which has performed, and is expected to continue to perform, legal services for us. In 2014 and 2015, we incurred approximately $2.4 million and $3.1 million, respectively, for legal fees and reimbursable expenses payable to that firm. As of December 31, 2014 and 2015, legal fees and reimbursable expenses of $0.6 million and $1.6 million, respectively, were payable to this law firm.

The owner of Nantworks, our DreamPlay Toys joint venture partner, beneficially owns 21.5% of the Company’s outstanding common stock, which includes 1.5 million shares underlying out-of-the-money warrants. Pursuant to the joint venture agreements, the Company is obligated to pay Nantworks a preferred return on joint venture sales.

For the years ended and as of December 31, 2014 and 2015 preferred returns of $821,939 and $718,767, respectively, were earned and payable to Nantworks. As of December 31, 2014 and 2015, the Company has a receivable from Nantworks in the amount of $0.6 million and $0.6 million, respectively. Pursuant to the amended Toy Services Agreement, Nantworks is entitled to receive a renewal fee in the amount of $1.2 million payable in installments of $0.8 million paid on the effective date of the renewal in 2015 and $0.2 million on or before each of August 1, 2016 and 2017. In addition, the Company commenced leasing office space from Nantworks in 2013. The lease was early terminated on January 31, 2015. Rent expense, including common area maintenance and parking, for the year ended December 31, 2014 and 2015 was $1.3 million and $0.1, respectively.

(b)  Review, Approval or Ratification of Transactions with Related Persons

Pursuant to our Ethical Code of Conduct (a copy of which may be found on our website, www.jakks.com), all of our employees are required to disclose to our General Counsel, the Board of directors or any committee established by the Board of Directors to receive such information, any material transaction or relationship that reasonably could be expected to give rise to actual or apparent conflicts of interest between any of them, personally, and us. In addition, our Ethical Code of Conduct also directs all employees to avoid any self-interested transactions without full disclosure. This policy, which applies to all of our employees, is reiterated in our Employee Handbook which states that a violation of this policy could be grounds for termination. In approving or rejecting a proposed transaction, our General Counsel, Board of Directors or designated committee will consider the facts and circumstances available and deemed relevant, including but not limited to, the risks, costs, and benefits to us, the terms of the transactions, the availability of other sources for comparable services or products, and, if applicable, the impact on director independence. Upon concluding their review, they will only approve those agreements that, in light of known circumstances, are in or are not inconsistent with, our best interests, as they determine in good faith.

(c)  Director Independence

For a description of our Board of Directors and its compliance with the independence requirements therefore as promulgated by the Securities and Exchange Commission and Nasdaq, see “Item 10- Directors, Executive Officers and Corporate Governance”.

Item 14.  Principal Accountant Fees and Services

Before our principal accountant is engaged by us to render audit or non-audit services, as required by the rules and regulations promulgated by the Securities and Exchange Commission and/or Nasdaq, such engagement is approved by the Audit Committee.

The following are the fees of BDO USA, LLP, our principal accountant, for the two years ended December 31, 2015, for services rendered in connection with the audit for those respective years (all of which have been pre-approved by the Audit Committee):

	2014		2015
Audit Fees	$	1,177,521	$	1,209,590
Audit Related Fees		24,307		33,961
Tax Fees		355		8,350
All Other Fees		—		—
	$	1,202,183	$	1,251,901

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Audit Fees consist of the aggregate fees for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our Forms 10-Q and for any other services that were normally provided by our auditors in connection with our statutory and regulatory filings or engagements.

Audit Related Fees consist of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements and were not otherwise included in Audit Fees. These fees primarily relate to statutory audit requirements and audits of employee benefit plans.

Tax Fees consist of the aggregate fees billed for professional services rendered for tax consulting. Included in such Tax Fees were fees for consultancy, review, and advice related to our income tax provision and the appropriate presentation on our financial statements of the income tax related accounts.

All Other Fees consist of the aggregate fees billed for products and services provided by our auditors and not otherwise included in Audit Fees, Audit Related Fees or Tax Fees.

Our Audit Committee has considered whether the provision of the non-audit services described above is compatible with maintaining our auditors’ independence and determined that such services are appropriate.

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PART IV

Item 15.  Exhibits and Financial Statement Schedules

The following documents are filed as part of this Annual Report on Form 10-K:

(1) Financial Statements (included in Item 8):

● Reports of Independent Registered Public Accounting Firm

● Consolidated Balance Sheets as of December 31, 2014 and 2015

● Consolidated Statements of Operations for the years ended December 31, 2013, 2014 and 2015

● Consolidated Statements of Other Comprehensive Income (Loss) for the years ended December 31, 2013, 2014 and 2015

● Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2014 and 2015

● Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2014 and 2015

● Notes to Consolidated Financial Statements

(2) Financial Statement Schedules (included in Item 8):

● Schedule II — Valuation and Qualifying Accounts

(3) Exhibits:

Exhibit Number		Description
	3.1	Amended and Restated Certificate of Incorporation of the Company (1)
	3.2	Amended and Restated  By-Laws of the Company (2)
	4.1	Indenture dated July 24, 2013 by and between the Registrant and Wells Fargo Bank, N.A (3)
	4.2	Form of 4.25% Senior Convertible Note (3)
	4.3	Credit Agreement dated as of March 27, 2014 by and among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (10)
	4.3.1	Fourth Amendment to Credit Agreement dated as of June 5, 2015 by and among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (20)
	4.4	Revolving Loan Note dated March 27, 2014 by Registrant and its US wholly-owned subsidiaries in favor of General Electric Capital Corporation (10)
	4.5	Indenture dated June 9, 2014 by and between the Registrant and Wells Fargo Bank, N.A (19)
	4.6	Form of 4.875% Senior Convertible Note (19)
	10.1.1	Third Amended and Restated 1995 Stock Option Plan (4)
	10.1.2	1999 Amendment to Third Amended and Restated 1995 Stock Option Plan (5)
	10.1.3	2000 Amendment to Third Amended and Restated 1995 Stock Option Plan (6)
	10.1.4	2001 Amendment to Third Amended and Restated 1995 Stock Option Plan (7)
	10.2	2002 Stock Award and Incentive Plan (8)
	10.2.1	2008 Amendment to 2002 Stock Award and Incentive Plan (9)
	10.4.1	Second Amended and Restated Employment Agreement between the Company and Stephen G. Berman dated as of November 11, 2010 (11)
	10.4.2	Clarification Letter dated October 20, 2011 with respect to Mr. Berman’s Second Amended and Restated employment agreement (12)
	10.4.3	Amendment Number One to Mr. Berman’s Second Amended and Restated Employment Agreement dated September 21, 2012 (13)
	10.5	Office Lease dated November 18, 1999 between the Company and Winco Maliview Partners (14)
	10.6	Form of Restricted Stock Agreement (10)
	10.7	Employment Agreement between the Company and Joel M. Bennett, dated October 21, 2011 (12)
	10.7.1	Continuation and Extension of Term of Employment Agreement Between JAKKS Pacific, Inc. and Joel M. Bennett dated February 18, 2014 (15)
	10.7.2	Amendment Extending Term of Employment Agreement Between JAKKS Pacific, Inc. and Joel M. Bennett dated June 11, 2015 (20)
	10.8	Employment Agreement between the Company and John a/k/a Jack McGrath, dated March 4, 2010 (16)
	10.8.1	First Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated August 23, 2011 (16)
	10.8.2	Second Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated May 15, 2013 (17)
	10.8.3	Third Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated June 11, 2015 (20)
	14	Code of Ethics (18)
	21	Subsidiaries of the Company (*)
	31.1	Rule 13a-14(a)/15d-14(a) Certification of Stephen G. Berman (*)
	31.2	Rule 13a-14(a)/15d-14(a) Certification of Joel M. Bennett (*)
	32.1	Section 1350 Certification of Stephen G. Berman (*)
	32.2	Section 1350 Certification of Joel M. Bennett (*)
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

97

(1)	Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement, filed August 23, 2002, and incorporated herein by reference.
(2)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.
(3)	Filed previously as an exhibit to the Company's Current Report on Form 8-K filed July 24, 2013 and incorporated herein by reference.
(4)	Filed previously as Appendix A to the Company’s Schedule 14A Proxy Statement, filed June 23, 1998, and incorporated herein by reference
(5)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-90055), filed November 1, 1999, and incorporated herein by reference.
(6)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-40392), filed June 29, 2000, and incorporated herein by reference.
(7)	Filed previously as Appendix B to the Company’s Schedule 14A Proxy Statement, filed June 11, 2001, and incorporated herein by reference.
(8)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-101665), filed December 5, 2002, and incorporated herein by reference.
(9)	Filed previously as an exhibit to the Company’s Schedule 14A Proxy Statement, filed August 20, 2008, and incorporated herein by reference.
(10)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed April 2, 2014 and incorporated herein by reference.
(11)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 17, 2010, and incorporated herein by reference.
(12)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.
(13)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 25, 2012, and incorporated herein by reference.
(14)	Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1999, filed March 30, 2000, and incorporated herein by reference.
(15)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed February 20, 2014, and incorporated herein by reference.
(16)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed August 24, 2011, and incorporated herein by reference.
(17)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed May 21, 2013, and incorporated herein by reference.
(18)	Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003, filed March 15, 2004, and incorporated herein by reference.
(19)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2014 and incorporated herein by reference.
(20)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 16, 2015 and incorporated herein by reference.

(*) Filed herewith.

98

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 15, 2016	JAKKS PACIFIC, INC.
	By:	/s/ STEPHEN G. BERMAN
		Stephen G. Berman
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ STEPHEN G. BERMAN	Director and	March 15, 2016
Stephen G. Berman	Chief Executive Officer
	Chief Financial Officer
/s/ JOEL M. BENNETT	(Principal Financial Officer and	March 15, 2016
Joel M. Bennett	Principal Accounting Officer)
/s/ REX H. POULSEN	Director	March 15, 2016
Rex H. Poulsen
/s/ MICHAEL S. SITRICK	Director	March 15, 2016
Michael S. Sitrick
/s/ MURRAY L. SKALA	Director	March 15, 2016
Murray L. Skala
/s/ ALEXANDER SHOGHI	Director	March 15, 2016
Alexander Shoghi

99

EXHIBIT INDEX

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of the Company (1)
3.2	Amended and Restated  By-Laws of the Company (2)
4.1	Indenture dated July 24, 2013 by and between the Registrant and Wells Fargo Bank, N.A (3)
4.2	Form of 4.25% Senior Convertible Note (3)
4.3	Credit Agreement dated as of March 27, 2014 by and among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (10)
4.3.1	Fourth Amendment to Credit Agreement dated as of June 5, 2015 by and among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (20)
4.4	Revolving Loan Note dated March 27, 2014 by Registrant and its US wholly-owned subsidiaries in favor of General Electric Capital Corporation (10)
4.5	Indenture dated June 9, 2014 by and between the Registrant and Wells Fargo Bank, N.A (19)
4.6	Form of 4.875% Senior Convertible Note (19)
10.1.1	Third Amended and Restated 1995 Stock Option Plan (4)
10.1.2	1999 Amendment to Third Amended and Restated 1995 Stock Option Plan (5)
10.1.3	2000 Amendment to Third Amended and Restated 1995 Stock Option Plan (6)
10.1.4	2001 Amendment to Third Amended and Restated 1995 Stock Option Plan (7)
10.2	2002 Stock Award and Incentive Plan (8)
10.2.1	2008 Amendment to 2002 Stock Award and Incentive Plan (9)
10.4.1	Second Amended and Restated Employment Agreement between the Company and Stephen G. Berman dated as of November 11, 2010 (11)
10.4.2	Clarification Letter dated October 20, 2011 with respect to Mr. Berman’s Second Amended and Restated employment agreement (12)
10.4.3	Amendment Number One to Mr. Berman’s Second Amended and Restated Employment Agreement dated September 21, 2012 (13)
10.5	Office Lease dated November 18, 1999 between the Company and Winco Maliview Partners (14)
10.6	Form of Restricted Stock Agreement (10)
10.7	Employment Agreement between the Company and Joel M. Bennett, dated October 21, 2011 (12)
10.7.1	Continuation and Extension of Term of Employment Agreement Between JAKKS Pacific, Inc. and Joel M. Bennett dated February 18, 2014 (15)
10.7.2	Amendment Extending Term of Employment Agreement Between JAKKS Pacific, Inc. and Joel M. Bennett dated June 11, 2015 (20)
10.8	Employment Agreement between the Company and John a/k/a Jack McGrath, dated March 4, 2010 (16)
10.8.1	First Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated August 23, 2011 (16)
10.8.2	Second Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated May 15, 2013 (17)
10.8.3	Third Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated June 11, 2015 (20)
14	Code of Ethics (18)
21	Subsidiaries of the Company (*)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Stephen G. Berman (*)
31.2	Rule 13a-14(a)/15d-14(a) Certification of Joel M. Bennett (*)
32.1	Section 1350 Certification of Stephen G. Berman (*)
32.2	Section 1350 Certification of Joel M. Bennett (*)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

100

(1)	Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement, filed August 23, 2002, and incorporated herein by reference.
(2)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.
(3)	Filed previously as an exhibit to the Company's Current Report on Form 8-K filed July 24, 2013 and incorporated herein by reference.
(4)	Filed previously as Appendix A to the Company’s Schedule 14A Proxy Statement, filed June 23, 1998, and incorporated herein by reference
(5)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-90055), filed November 1, 1999, and incorporated herein by reference.
(6)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-40392), filed June 29, 2000, and incorporated herein by reference.
(7)	Filed previously as Appendix B to the Company’s Schedule 14A Proxy Statement, filed June 11, 2001, and incorporated herein by reference.
(8)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-101665), filed December 5, 2002, and incorporated herein by reference.
(9)	Filed previously as an exhibit to the Company’s Schedule 14A Proxy Statement, filed August 20, 2008, and incorporated herein by reference.
(10)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed April 2, 2014 and incorporated herein by reference.
(11)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 17, 2010, and incorporated herein by reference.
(12)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.
(13)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 25, 2012, and incorporated herein by reference.
(14)	Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1999, filed March 30, 2000, and incorporated herein by reference.
(15)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed February 20, 2014, and incorporated herein by reference.
(16)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed August 24, 2011, and incorporated herein by reference.
(17)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed May 21, 2013, and incorporated herein by reference.
(18)	Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003, filed March 15, 2004, and incorporated herein by reference.
(19)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2014 and incorporated herein by reference.
(20)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 16, 2015 and incorporated herein by reference.

(*) Filed herewith.

101

EX-21

EXHIBIT 21

JAKKS PACIFIC, INC. SUBSIDIARIES

Subsidiary	Jurisdiction
A.S. Design Limited	Hong Kong
Arbor Toys Company Limited	Hong Kong
Creative Designs International, Ltd.	Delaware
Disguise Limited	Hong Kong
Disguise, Inc.	Delaware
DreamPlay Toys LLC	Delaware
JAKKS Meisheng Trading (Shanghai) Limited	China
JAKKS Pacific (Asia) Limited	Hong Kong
JAKKS Pacific (Canada), Inc.	Canada
JAKKS Pacific (HK) Limited	Hong Kong
JAKKS Pacific (Shenzhen) Company	China
JAKKS Pacific (UK) Ltd.	United Kingdom
JAKKS Pacific France, S.A.S.	France
JAKKS Pacific Germany GmbH	Germany
JAKKS Pacific Iberia, S.L.	Spain
JAKKS Pacific Trading Limited	Hong Kong
JAKKS Sales Corporation	Delaware
JKID Limited	United Kingdom
JKP Mexico Holdings, S.A. de C.V.	Mexico
Kids Only Limited	Hong Kong
Kids Only, Inc.	Massachusetts
Maui, Inc.	Ohio
Moose Mountain Marketing, Inc.	New Jersey
Moose Mountain Toymakers Limited	Hong Kong
Pacific Animation Partners LLC	Delaware
Play Along (Hong Kong) Limited	Hong Kong
Tollytots Limited	Hong Kong

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Stephen Berman, Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of JAKKS Pacific, Inc. (“Company”);

2. Based upon my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based upon my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial statements for external purposes in accordance with generally accepted accounting principles.

c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and

d) disclosed in this annual report any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based upon our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: March 15, 2016

By:	/s/ STEPHEN G. BERMAN
	Stephen G. Berman
	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its Staff upon request.

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Joel M. Bennett, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of JAKKS Pacific, Inc. (“Company”);

2. Based upon my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based upon my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial statements for external purposes in accordance with generally accepted accounting principles.

c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and

d) disclosed in this annual report any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based upon our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: March 15, 2016

By:	/s/ JOEL M. BENNETT
	Joel M. Bennett
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its Staff upon request.

EX-32.1

EXHIBIT  32.1

Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of JAKKS Pacific, Inc. (“Registrant”) hereby certifies that the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: March 15, 2016

/s/ STEPHEN G. BERMAN

Stephen G. Berman

Chief Executive Officer

EX-32.2

EXHIBIT 32.2

Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of JAKKS Pacific, Inc. (“Registrant”) hereby certifies that the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: March 15, 2016

/s/ JOEL M. BENNETT

JOEL M. BENNETT

Chief Financial Officer

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2015	Mar. 14, 2016	Jun. 30, 2015
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY
Trading Symbol	JAKK
Entity Registrant Name	JAKKS PACIFIC INC
Entity Central Index Key	0001009829
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		20,340,388
Entity Public Float			$ 195,081,288

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Current assets
Cash and cash equivalents	$ 102,528	$ 71,525
Marketable securities		220
Accounts receivable, net of allowance for uncollectible accounts of $3,264 and $2,714 in 2014 and 2015, respectively	163,387	234,516
Inventory, net	60,544	78,827
Income tax receivable	24,008	24,008
Deferred income taxes		3,358
Prepaid expenses and other	31,901	25,139
Total current assets	382,368	437,593
Property and equipment
Office furniture and equipment	15,141	14,440
Molds and tooling	86,307	87,360
Leasehold improvements	10,640	5,280
Total	112,088	107,080
Less accumulated depreciation and amortization	93,653	95,984
Property and equipment, net	18,435	11,096
Deferred tax asset	446
Intangibles, net	42,185	48,904
Other long term assets	8,959	10,389
Investment in DreamPlay LLC	7,000	7,000
Goodwill, net	44,199	44,492
Trademarks, net	2,308	2,308
Total assets	505,900	561,782
Current liabilities
Accounts payable	34,986	56,113
Accrued expenses	54,081	86,974
Reserve for sales returns and allowances	17,267	24,477
Income taxes payable	21,067	23,784
Deferred income taxes	2,739
Total current liabilities	130,140	191,348
Convertible senior notes, net	215,000	215,000
Other liabilities	5,155	1,874
Income taxes payable	2,199	2,496
Deferred income taxes		5,980
Total liabilities	$ 352,494	$ 416,698
Commitments and Contingencies
Stockholders' equity
Preferred shares, $.001 par value; 5,000,000 shares authorized; nil outstanding
Common stock, $.001 par value; 100,000,000 shares authorized; 22,682,295 and 21,153,878 shares issued and outstanding in 2014 and 2015, respectively	$ 21	$ 23
Treasury stock at cost; 3,112,840 and 3,660,201 shares in 2014 and 2015, respectively	(28,322)	(24,000)
Additional paid-in capital	194,743	202,051
Accumulated deficit	(3,391)	(26,645)
Accumulated other comprehensive loss	(10,051)	(6,835)
Total JAKKS Pacific, Inc.'s stockholders' equity	153,000	144,594
Non-controlling interests	406	490
Total stockholders' equity	153,406	145,084
Total liabilities and stockholders' equity	$ 505,900	$ 561,782

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Accounts receivable, allowance for uncollectible accounts	$ 2,714	$ 3,264
Preferred shares, par value	$ 0.001	$ 0.001
Preferred shares, shares authorized	5,000,000	5,000,000
Preferred shares, outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	21,153,878	22,682,295
Common stock, shares outstanding	21,153,878	22,682,295
Treasury stock, shares	3,660,201	3,112,840

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Net Sales	$ 745,741	$ 810,060	$ 632,925
Cost of sales	517,172	574,253	477,146
Gross profit	228,569	235,807	155,779
Selling, general and administrative expenses	198,039	204,480	200,311
Income (loss) from operations	30,530	31,327	(44,532)
Change in fair value of business combination liability	5,642	5,932	6,000
Profit from video game joint venture	2,701
Income (loss) from joint ventures	60	314	(3,148)
Interest income	62	112	327
Interest expense	(12,402)	(12,461)	(9,942)
Income (loss) before provision for income taxes	26,593	25,224	(51,295)
Provision for income taxes	3,423	3,715	2,611
Net income (loss)	23,170	21,509	(53,906)
Net loss attributable to non-controlling interests	(84)
Net income (loss) attributable to JAKKS Pacific, Inc.	$ 23,254	$ 21,509	$ (53,906)
Basic earnings (loss) per share	$ 1.20	$ 1.03	$ (2.43)
Basic weighted number of shares	19,435	20,948	22,200
Diluted earnings (loss) per share	$ 0.71	$ 0.70	$ (2.43)
Diluted weighted number of shares	43,321	41,516	22,200

XML

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Net income (loss)	$ 23,170	$ 21,509	$ (53,906)
Other comprehensive income (loss):
Foreign currency translation adjustment	(3,216)	(2,986)	366
Comprehensive income (loss)	19,954	18,523	(53,540)
Less: Comprehensive loss attributable to non-controlling interests	(84)
Comprehensive income (loss) attributable to JAKKS Pacific, Inc.	$ 20,038	$ 18,523	$ (53,540)

XML

Consolidated Statements of Stockholders' Equity - USD ($) shares in Thousands	Total	Common Stock	Treasury Stock	Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)	Accumulated Other Comprehensive Income (Loss)	JAKKS Pacific Inc.'s Stockholders' Equity	Non- Controlling Interests
Beginning Balance (in shares) at Dec. 31, 2012		21,969
Beginning Balance at Dec. 31, 2012	$ 207,220,000	$ 22,000		$ 202,577,000	$ 8,836,000	$ (4,215,000)	$ 207,220,000
Excess tax deficiency on stock options and vesting of restricted stock	(160,000)			(160,000)			(160,000)
Restricted stock grants (in shares)		707
Restricted stock grants	1,085,000	$ 1,000		1,084,000			1,085,000
Dividends declared	(3,084,000)				(3,084,000)		(3,084,000)
Retirement of restricted stock (in shares)		(7)
Retirement of restricted stock	(34,000)			(34,000)			(34,000)
Repurchase of equity component of convertible notes	(2,802,000)			(2,802,000)			(2,802,000)
Net income (loss)	(53,906,000)				(53,906,000)		(53,906,000)
Foreign currency translation adjustment	366,000					366,000	366,000
Ending Balance (in shares) at Dec. 31, 2013		22,669
Ending Balance at Dec. 31, 2013	148,685,000	$ 23,000		200,665,000	(48,154,000)	(3,849,000)	148,685,000
Excess tax deficiency on stock options and vesting of restricted stock	(85,000)			(85,000)			(85,000)
Restricted stock grants (in shares)		65
Restricted stock grants	1,473,000	$ 1,000		1,472,000			1,473,000
Dividends declared	0
Retirement of restricted stock (in shares)		(52)
Retirement of restricted stock	(2,000)	$ (1,000)		(1,000)			(2,000)
Prepaid forward purchase contract	(24,000,000)		$ (24,000,000)				(24,000,000)
Contributions from non-controlling interests	490,000							$ 490,000
Net income (loss)	21,509,000				21,509,000		21,509,000
Foreign currency translation adjustment	(2,986,000)					(2,986,000)	(2,986,000)
Ending Balance (in shares) at Dec. 31, 2014		22,682
Ending Balance at Dec. 31, 2014	145,084,000	$ 23,000	(24,000,000)	202,051,000	(26,645,000)	(6,835,000)	144,594,000	490,000
Restricted stock grants (in shares)		71
Restricted stock grants	1,562,000	$ 1,000		1,561,000			1,562,000
Dividends declared	0
Retirement of restricted stock (in shares)		(52)
Retirement of restricted stock	(1,000)	$ (1,000)					(1,000)
Repurchase of common stock	(13,193,000)	$ (1,000)	(13,192,000)				(13,193,000)
Repurchase of common stock (in shares)		(1,547)
Retirement of treasury stock		$ (1,000)	8,870,000	(8,869,000)
Net income (loss)	23,170,000				23,254,000		23,254,000	(84,000)
Foreign currency translation adjustment	(3,216,000)					(3,216,000)	(3,216,000)
Ending Balance (in shares) at Dec. 31, 2015		21,154
Ending Balance at Dec. 31, 2015	$ 153,406,000	$ 21,000	$ (28,322,000)	$ 194,743,000	$ (3,391,000)	$ (10,051,000)	$ 153,000,000	$ 406,000

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Cash flows from operating activities
Net income (loss)	$ 23,170	$ 21,509	$ (53,906)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	20,902	21,883	24,599
Share-based compensation expense	1,562	1,473	1,085
Loss on disposal of property and equipment	47	18	3,060
Change in fair value of business combination liability	(5,642)	(5,932)	(6,000)
Gain on extinguishment of convertible notes			(84)
(Income) loss from joint ventures	(1,017)	(314)	3,148
Deferred income taxes	(329)	(371)	(129)
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable	71,129	(133,293)	4,232
Inventory	18,283	(32,043)	12,906
Prepaid expenses and other	(7,513)	2,534	(6,367)
Accounts payable	(21,127)	30,838	(12,518)
Accrued expenses	(26,234)	23,820	16,283
Income taxes payable	(3,014)	2,921	5,750
Reserve for sales returns and allowances	(7,210)	(6,897)	(2,999)
Other liabilities	3,281	(5,147)	(11,324)
Excess tax deficiency from share-based compensation		(85)	(160)
Total adjustments	43,118	(100,595)	31,482
Net cash provided by (used in) operating activities	66,288	(79,086)	(22,424)
Cash flows from investing activities
Purchases of property and equipment	(18,327)	(10,453)	(10,129)
Change in other assets	(4,149)	(2,766)	(135)
Contributions to joint venture			(1,636)
Distributions from joint venture	60	332	1,149
(Purchases) sale of marketable securities	220		(2)
Net cash used in investing activities	(22,196)	(12,887)	(10,753)
Cash flows from financing activities
Common stock surrendered	(1)	(2)	(34)
Common stock repurchased	(13,193)	(24,000)
Proceeds from (repayment of) credit facility borrowings			(70,710)
Credit facility costs	(188)	(1,851)
Dividends paid			(3,084)
Proceeds from issuance of convertible notes		115,000	100,000
Bank fees related to convertible notes		(4,594)	(4,179)
Retirement of senior convertible notes		(39,000)	(61,000)
Proceeds from issuance of common shares of non-controlling interests		490
Net cash provided by (used in) financing activities	(13,382)	46,043	(39,007)
Net increase (decrease) in cash and cash equivalents	30,710	(45,930)	(72,184)
Effect of foreign currency translation	293	384	(66)
Cash and cash equivalents, beginning of year	71,525	117,071	189,321
Cash and cash equivalents, end of year	102,528	71,525	117,071
Cash paid (refunded) during the period for:
Interest	10,198	8,964	4,408
Income taxes	$ 7,832	$ 945	$ (4,644)

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Principal Industry

12 Months Ended

Dec. 31, 2015

Principal Industry

Note 1—Principal Industry

JAKKS Pacific, Inc. (the “Company”) is engaged in the development, production and marketing of consumer products, including toys and related products, electronic products, pet toys and related products, and other consumer products, many of which are based on highly-recognized character and entertainment licenses. The Company commenced its primary business operations in July 1995 through the purchase of substantially all of the assets of a Hong Kong toy company. The Company markets its product lines domestically and internationally.

The Company was incorporated under the laws of the State of Delaware in January 1995.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Summary of Significant Accounting Policies

Note 2—Summary of Significant Accounting Policies

Principles of consolidation

These consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and its majority owned joint venture. All intercompany transactions have been eliminated.

The Company entered into a joint venture with Meisheng Culture & Creative Corp., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed upon territories of the People’s Republic of China. The joint venture will include a subsidiary in the Shanghai Free Trade Zone that is expected to sell, distribute and market these products, which can include dolls, plush, role play products, action figures, costumes, seasonal items, technology and app-enhanced toys and many more, based on top entertainment licenses and JAKKS’ own proprietary brands. The Company owns fifty-one percent of the joint venture.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less, when acquired, to be cash equivalents. The Company maintains its cash in bank deposits which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk of cash and cash equivalents.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.

Accounts Receivable and Allowance for Doubtful Accounts

Credit is granted to customers on an unsecured basis. Credit limits and payment terms are established based on extensive evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash generation, financing availability, and liquidity status of each customer. Customers are reviewed at least annually, with more frequent reviews performed as necessary, depending upon the customer’s financial condition and the level of credit being extended. For customers who are experiencing financial difficulties, management performs additional financial analyses before shipping to those customers on credit. The Company uses a variety of financial arrangements to ensure collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.

The Company records an allowance for doubtful accounts based upon management’s assessment of the business environment, customers’ financial condition, historical collection experience, accounts receivable aging, customer disputes, and the collectability of specific customer accounts.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual future results could differ from those estimates.

Revenue recognition

Revenue is recognized upon the shipment of goods to customers or their agents, depending upon terms, provided there are no uncertainties regarding customer acceptance, the sales price is fixed or determinable and collectability is reasonably assured.

Generally the Company does not allow product returns. It provides its customers a negotiated allowance for breakage or defects, which is recorded when the related revenue is recognized. However, the Company does make occasional exceptions to this policy and consequently accrues a return allowance based upon historic return amounts and management estimates. The Company occasionally grants credits to facilitate markdowns and sales of slow moving merchandise. These credits are recorded as a reduction of gross sales at the time of the sale.

The Company’s reserve for sales returns and allowances decreased by $7.2 million from $24.5 million as of December 31, 2014 to $17.3 million as of December 31, 2015. This decrease was primarily due to certain customers taking their year-end allowances related to 2014 and 2015 during 2015, as well as reduced markdown allowances in 2015.

Fair value measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based upon these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2:	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3:	Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 31 (in thousands):

			Fair Value Measurements
	Carrying Amount as of		As of December 31, 2014
	December 31, 2014		Level 1		Level 2		Level 3
Cash equivalents	$	12,166	$	12,166	$	—	$	—
Marketable securities		220		220		—		—
	$	12,386	$	12,386	$	—	$	—

			Fair Value Measurements
	Carrying Amount as of		As of December 31, 2015
	December 31, 2015		Level 1		Level 2		Level 3
Cash equivalents	$	13,218	$	13,218	$	—	$	—
Marketable securities		—		—		—		—
	$	13,218	$	13,218	$	—	$	—

The Company’s accounts receivable, accounts payable and accrued expenses represent financial instruments. The carrying value of these financial instruments is a reasonable approximation of fair value.

The fair value of the 4.25% convertible senior notes payable due 2018 as of December 31, 2014 and 2015 was $96.3 million and $102.0 million respectively, based upon the most recent quoted market prices, and the fair value of the 4.875% convertible senior notes payable due 2020 as of December 31, 2014 and 2015 was $100.9 million and $112.3 million, respectively, based upon the most recent quoted market prices. The fair values of the convertible senior notes are considered to be Level 2 measurements on the fair value hierarchy.

For the years ended December 31, 2014 and 2015, there was no impairment to the value of the Company’s non-financial assets.

Inventory

Inventory, which includes the ex-factory cost of goods, capitalized warehouse costs and in-bound freight and duty, is valued at the lower of cost (first-in, first-out) or market, net of inventory obsolescence reserve, and consists of the following (in thousands):

	December 31,
	2014		2015
Raw materials	$	1,040	$	3,717
Finished goods		77,787		56,827
	$	78,827	$	60,544

Property and equipment

Property and equipment are stated at cost and are being depreciated using the straight-line method over their estimated useful lives as follows:

Office equipment	5 years
Automobiles	5 years
Furniture and fixtures	5 - 7 years
Leasehold improvements	Shorter of length of lease or 10 years

The Company uses the usage method as its depreciation methodology for molds and tools used in the manufacturing of its products, which is more closely correlated to production of goods. The Company believes that the usage method more accurately matches costs with revenues. Furthermore, the useful estimated life of molds and tools is two years.

For the years ended December 31, 2013, 2014, and 2015, the Company’s aggregate depreciation expense related to property and equipment was $11.8 million, $10.4 million, and $10.9 million, respectively.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes all changes in equity from non-owner sources. The Company accounts for other comprehensive income in accordance with Accounting Standards Codification (“ASC”) ASC 220, “Comprehensive Income.” All the activity in other comprehensive income (loss) and all amounts in accumulated other comprehensive income (loss) relate to foreign currency translation adjustments.

Advertising

Production costs of commercials and programming are charged to operations in the period during which the production is first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the period incurred. Advertising expense for the years ended December 31, 2013, 2014 and 2015, was approximately $10.1 million, $19.3 million, and $15.8 million, respectively.

The Company also participates in cooperative advertising arrangements with certain customers, whereby it allows a discount from invoiced product amounts in exchange for customer purchased advertising that features the Company’s products. Typically, these discounts range from 1% to 6% of gross sales, and are generally based upon product purchases or specific advertising campaigns. Such amounts are accrued when the related revenue is recognized or when the advertising campaign is initiated. These cooperative advertising arrangements are accounted for as direct selling expenses.

Income taxes

The Company does not file a consolidated return with its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective jurisdictions. Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized as deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Foreign Currency Translation Exposure

The Company’s reporting currency is the US dollar. The translation of its net investment in subsidiaries with non-US dollar functional currencies subjects the Company to currency exchange rate fluctuations in its results of operations and financial position. Assets and liabilities of subsidiaries with non-US dollar functional currencies are translated into US dollars at year-end exchange rates. Income, expense, and cash flow items are translated at average exchange rates prevailing during the year. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss/gain within stockholders’ equity. The Company’s primary currency translation exposures in 2013, 2014 and 2015 were related to its net investment in entities having functional currencies denominated in the Hong Kong dollar.

Foreign Currency Transaction Exposure

Currency exchange rate fluctuations may impact the Company’s results of operations and cash flows. The Company’s currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable functional currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating activities are recorded in the components of operating income in the consolidated statement of operations. Inventory purchase transactions denominated in the Hong Kong dollar were the primary transactions that caused foreign currency transaction exposure for the Company in 2013, 2014 and 2015.

Accounting for the impairment of finite-lived tangible and intangible assets

Long-lived assets with finite lives, which include property and equipment and intangible assets other than goodwill, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. Finite-lived intangible assets consist primarily of product technology rights, acquired backlog, customer relationships, product lines and license agreements. These intangible assets are amortized over the estimated economic lives of the related assets. There were no impairments for years ended December 31, 2013, 2014 and 2015.

Goodwill and other indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment at least annually at the reporting unit level. Losses in value are recorded when material impairment has occurred in the underlying assets or when the benefits of the identified intangible assets are realized. Indefinite-lived intangible assets other than goodwill consist of trademarks.

The carrying value of goodwill and trademarks are based upon cost, which is subject to management’s current assessment of fair value. Management evaluates fair value recoverability using both objective and subjective factors. Objective factors include cash flows and analysis of recent sales and earnings trends. Subjective factors include management’s best estimates of projected future earnings and competitive analysis and the Company’s strategic focus.

For the years ended December 31, 2013, 2014 and 2015, there was no impairment to the value of the Company's goodwill or trademarks.

Share-based Compensation

The Company measures all employee share-based compensation awards using a fair value method and records such expense in its consolidated financial statements. The Company recorded $1.1 million, $1.5 million, and $1.6 million of restricted stock expense, in 2013, 2014, and 2015, respectively. See Note 17 for further details relating to share based compensation.

Earnings per share

The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted earnings per share (“EPS”) for the periods presented (in thousands, except per share data):

	2013
				Weighted
				Average
	Loss			Shares		Per Share
Basic EPS
Loss available to common stockholders	$	(53,906	)		22,200	$	(2.43	)
Effect of dilutive securities:
Assumed conversion of convertible senior notes		—			—
Options and warrants		—			—
Unvested restricted stock grants		—			—
Diluted EPS
Loss available to common stockholders plus assumed exercises and conversion	$	(53,906	)		22,200	$	(2.43	)

	2014
			Weighted
			Average
	Income		Shares		Per Share
Basic EPS
Income available to common stockholders	$	21,509		20,948	$	1.03
Effect of dilutive securities:
Assumed conversion of convertible senior notes		7,345		20,388
Options and warrants		—		—
Unvested restricted stock grants		—		180
Diluted EPS
Income available to common stockholders plus assumed exercises and conversion	$	28,854		41,516	$	0.70

	2015
			Weighted
			Average
	Income		Shares		Per Share
Basic EPS
Income available to common stockholders	$	23,254		19,435	$	1.20
Effect of dilutive securities:
Assumed conversion of convertible senior notes		7,385		23,369
Options and warrants		—		—
Unvested performance stock grants		—		347
Unvested restricted stock grants		—		170
Diluted EPS
Income available to common stockholders plus assumed exercises and conversion	$	30,639		43,321	$	0.71

Basic earnings per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of warrants, options and convertible debt to the extent they are dilutive). For the years ended December 31, 2013, 2014 and 2015, the convertible notes interest and related common share equivalent of 10,037,523, nil and nil, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive. Potentially dilutive stock options and warrants of 1,627,144, 1,601,272 and 1,518,596 for the years ended December 31, 2013, 2014, and 2015, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive. Potentially dilutive restricted stock of 111,195, nil and nil for the years ended December 31, 2013, 2014 and 2015, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive.

The Company is also party to a prepaid forward contract to purchase 3,112,840 shares of its common stock that are to be delivered over a settlement period in 2020. The number of shares to be delivered under the prepaid forward contract has been removed from the weighted-average basic and diluted shares outstanding. Any dividends declared and paid on the shares underlying the forward contract are to be reverted back to the Company based on the contractual terms of the forward contract.

Debt with Conversion and Other Options

In July 2013, the Company sold an aggregate of $100.0 million principal amount of 4.25% Convertible Senior Notes due 2018 (the “2018 Notes”). The 2018 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on August 1 and February 1 of each year at a rate of 4.25% per annum and will mature on August 1, 2018. The initial conversion rate for the 2018 Notes will be 114.3674 shares of the Company’s common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $8.74 per share of common stock, subject to adjustment in certain events. Holders of the 2018 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2018 Notes will be settled in shares of the Company’s common stock.

In June 2014, the Company sold an aggregate of $115.0 million principal amount of 4.875% Convertible Senior Notes due 2020 (the “2020 Notes”). The 2020 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on June 1 and December 1 of each year at a rate of 4.875% per annum and will mature on June 1, 2020. The initial conversion rate for the 2020 Notes will be 103.7613 shares of our common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $9.64 per share of common stock, subject to adjustment in certain events. Holders of the 2020 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2020 Notes will be settled in shares of the Company’s common stock. The Company received net proceeds of approximately $110.4 million from the offering of which $24.0 million was used to repurchase 3.1 million shares of the Company’s common stock under a prepaid forward purchase contract. In January 2016 the Company repurchased $2.0 million of the 2020 Notes.

In June 2014, the Company effectively repurchased 3,112,840 shares of its common stock at an average cost of $7.71 per share for an aggregate amount of $24.0 million pursuant to a prepaid forward share repurchase agreement entered into with Merrill Lynch International (“ML”). These repurchased shares are treated as retired for basic and diluted EPS purposes although they remain legally outstanding. The Company reflects the aggregate purchase price of its common shares repurchased as a reduction to stockholders’ equity allocated to treasury stock. Any dividends declared and paid on the shares underlying the forward contract are to be reverted back to the Company based on the contractual terms of the forward contract.

Reclassifications

Certain reclassifications were made to the prior year consolidated financial statements to conform to current year presentation.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and has not yet determined the method by which we will adopt the standard in 2018.

In August 2014, the FASB amended the FASB Accounting Standards Codification and amended Subtopic 205-40, “Presentation of Financial Statements — Going Concern.” This amendment prescribes that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting periods beginning January 1, 2017. Upon adoption the Company will use this guidance to evaluate going concern.

In April 2015, the FASB issued Accounting Standards Update 2015-03, “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendment will be effective for our annual and interim reporting periods beginning January 1, 2016 and should be applied on a retrospective basis. The adoption of ASU 2015-03 will not have any impact on our results of operations, but will result in debt issuance costs being presented as a direct reduction from the carrying amount of debt liabilities.

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires inventory accounted for under the FIFO or average cost method to be measured using the lower of cost and net realizable value. The amendments are effective prospectively for fiscal years and for interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of the pending adoption of ASU 2015-11 on the consolidated financial statements.

In August 2015, the FASB issued Accounting Standards Update 2015-15, “Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”). ASU 2015-15 codifies an SEC staff announcement that entities are permitted to defer and present debt issuance costs related to line-of-credit arrangements as assets. The announcements were effective upon issuance. The adoption of ASU 2015-15 does not have any impact on The Company’s consolidated financial statements.

In November 2015, the FASB issued Accounting Standards Update. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU 2015-17 will have on its financial position or financial statement disclosures.

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of this new standard on its financial statements.

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Business Segments, Geographic Data, Sales by Product Group and Major Customers

12 Months Ended

Dec. 31, 2015

Business Segments, Geographic Data, Sales by Product Group and Major Customers

Note 3—Business Segments, Geographic Data, Sales by Product Group and Major Customers

The Company is a worldwide producer and marketer of children’s toys and other consumer products, principally engaged in the design, development, production, marketing and distribution of its diverse portfolio. The Company’s reportable segments are Traditional Toys and Electronics, and Role Play, Novelty and Seasonal Toys, each of which includes worldwide sales.

The Traditional Toys and Electronics segment includes action figures, vehicles, playsets, plush products, dolls, accessories, electronic products, construction toys, infant and pre-school toys, foot to floor ride-on vehicles, wagons and pet products and related products.

The Role Play, Novelty and Seasonal segment includes role play and dress-up products, novelty toys, seasonal and outdoor products, indoor and outdoor kids’ furniture and Halloween and everyday costume play.

Segment performance is measured at the operating income level. All sales are made to external customers and general corporate expenses have been attributed to the various segments based upon sales volumes. Segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances, goodwill, molds and tooling and other assets.

Results are not necessarily those that would be achieved were each segment an unaffiliated business enterprise. Information by segment and a reconciliation to reported amounts as of December 31, 2014 and 2015 and for the three years in the period ended December 31, 2015 are as follows (in thousands):

	Years Ended December 31,
	2013		2014		2015
Net Sales
Traditional Toys and Electronics	$	320,565	$	408,426	$	437,683
Role Play, Novelty and Seasonal Toys		312,360		401,634		308,058
	$	632,925	$	810,060	$	745,741

	Years Ended December 31,
	2013			2014		2015
Operating Income (Loss)
Traditional Toys and Electronics	$	(25,286	)	$	10,654	$	13,588
Role Play, Novelty and Seasonal Toys		(19,246	)		20,673		16,942
	$	(44,532	)	$	31,327	$	30,530

	Years Ended December 31,
	2013		2014		2015
Depreciation and Amortization Expense
Traditional Toys and Electronics	$	12,475	$	11,159	$	10,911
Role Play, Novelty and Seasonal Toys		8,939		7,812		7,949
	$	21,414	$	18,971	$	18,860

	December 31,
	2014		2015
Assets
Traditional Toys and Electronics	$	313,380	$	326,199
Role Play, Novelty and Seasonal Toys		248,402		179,701
	$	561,782	$	505,900

Information regarding the Company’s operations in different geographical areas is presented below on the basis the Company uses to manage its business. Net revenues are categorized based upon location of the customer, while long-lived assets are categorized based upon the location of the Company’s assets. Tools, dies and molds represent a substantial portion of the long-lived assets included in the United States with a net book value of $8.8 million in 2014 and $10.2 million in 2015 and substantially all of these assets are located in China. The following tables present information about the Company by geographic area as of December 31, 2014 and 2015 and for each of the three years in the period ended December 31, 2015 (in thousands):

	December 31,
	2014		2015
Long-lived Assets
China	$	8,816	$	10,172
United States		1,689		7,702
Hong Kong		591		561
	$	11,096	$	18,435

	Years Ended December 31,
	2013		2014		2015
Net Sales by Geographic Area
United States	$	524,193	$	653,497	$	542,101
Europe		48,585		67,027		117,313
Canada		25,125		33,040		32,587
Hong Kong		6,721		2,746		1,675
Other		28,301		53,750		52,065
	$	632,925	$	810,060	$	745,741

Major Customers

Net sales to major customers were as follows (in thousands, except for percentages):

	2013					2014					2015
			Percentage of					Percentage of					Percentage of
	Amount		Net Sales			Amount		Net Sales			Amount		Net Sales
Wal-Mart	$	135,223		21.4	%	$	165,777		20.5	%	$	163,333		21.9	%
Target		98,770		15.6			124,257		15.3			96,766		13.0
Toys ‘R’ Us		68,074		10.8			93,926		11.6			71,150		9.5
	$	302,067		47.8	%	$	383,960		47.4	%	$	331,249		44.4	%

No other customer accounted for more than 10% of the Company’s total net sales.

As of December 31, 2014 and 2015, the Company’s three largest customers accounted for approximately 29.8% and 56.2%, respectively, of net accounts receivable. The concentration of the Company’s business with a relatively small number of customers may expose the Company to material adverse effects if one or more of its large customers were to experience financial difficulty. The Company performs ongoing credit evaluations of its top customers and maintains an allowance for potential credit losses.

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Joint Ventures

12 Months Ended

Dec. 31, 2015

Joint Ventures

Note 4—Joint Ventures

The Company owns a fifty percent interest in a joint venture (“Pacific Animation Partners”) with the U.S. entertainment subsidiary of a leading Japanese advertising and animation production company. The joint venture was created to develop and produce a boys’ animated television show, which it licensed worldwide for television broadcast as well as consumer products. The Company produced toys based upon the television program under a license from the joint venture which also licensed certain other merchandising rights to third parties. The Company is responsible for fifty percent of the operating expenses of the joint venture. The Company’s investment is being accounted for using the equity method. The joint venture completed and delivered 65 episodes of the show, which began airing in February 2012, and has since ceased production of the television show. For the years ended December 31, 2013, 2014 and 2015, the Company recognized a loss from the joint venture of $3.1 million, a gain of $0.3 million and a gain of $0.1 million, respectively, including producer fees and royalty income from the joint venture in the amount of $0.3 million, $0.2 million and nil, respectively.

As of December 31, 2014 and 2015, the balance of the investment in the Pacific Animation Partners joint venture includes the following components (in thousands):

	December 31,			December 31,
	2014			2015
Capital contributions	$	3,856		$	—
Equity in cumulative net loss		(3,856	)		—
Investment in joint venture	$	—		$	—

In September 2012, the Company entered into a joint venture (“DreamPlay Toys”) with NantWorks LLC (“NantWorks”) in which it owns a fifty percent interest. Pursuant to the operating agreement of DreamPlay Toys, the Company paid to NantWorks cash in the amount of $8.0 million and issued NantWorks a warrant to purchase 1.5 million shares of the Company’s common stock at a value of $7.0 million in exchange for the exclusive right to arrange for the provision of the NantWorks recognition technology platform for toy products. The Company has classified these rights as an intangible asset, which are being amortized over the anticipated revenue stream from the exploitation of these rights. The joint venture entered into a Toy Services Agreement, as amended, with a current expiration date of October 1, 2018, to develop and produce toys utilizing recognition technologies owned by NantWorks. Pursuant to the terms of the amended Toy Services Agreement, NantWorks is entitled to receive a renewal fee of $0.4 million per year and a minimum annual preferred return in the amount of $0.5 million based upon net sales of DreamPlay Toys product sales and third-party license fees. The Company retains the financial risk of the joint venture and is responsible for the day-to-day operations, including development, sales and distribution, for which it is entitled to receive any remaining profit or is responsible for any losses. The results of operations of the joint venture are consolidated with the Company’s results. Sales of DreamPlay Toys products commenced in the third quarter of 2013.

In addition, in 2012, the Company invested $7.0 million in cash in exchange for a five percent economic interest in a related entity, DreamPlay LLC, which will exploit the recognition technologies in non-toy consumer product categories. NantWorks has the right to repurchase the Company’s interest for $7.0 million. The Company has classified this investment as a long term asset on its balance sheet. The Company’s investment is being accounted for using the cost method. As of December 31, 2015, the Company determined the value of this investment will be realized and that no impairment has occurred.

In November 2014, the Company entered into a joint venture with Meisheng Culture & Creative Corp., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed-upon territories of the People’s Republic of China. The joint venture will include a subsidiary in the Shanghai Free Trade Zone that is expected to sell, distribute and market these products, which can include dolls, plush, role play products, action figures, costumes, seasonal items, technology and app-enhanced toys and many more, based on top entertainment licenses and JAKKS’ own proprietary brands. The Company owns fifty-one percent of the joint venture. The results of operations of the joint venture are consolidated with the Company's results. Only minimal expenses were incurred in 2014 and the non-controlling interest’s share of the losses from the joint venture for the year ended December 31, 2014 and 2015 was nominal and $84,000, respectively.

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Business Combinations

12 Months Ended

Dec. 31, 2015

Business Combinations

Note 5—Business Combinations

The Company acquired the following entities to further enhance its existing product lines and to continue diversification into other toy categories and seasonal businesses:

In July 2012, the Company acquired all of the stock of Maui, Inc., an Ohio corporation, Kessler Services, Inc., a Nevada corporation, and A.S. Design Limited, a Hong Kong corporation (collectively, “Maui”). The cash consideration totaled $36.2 million. In addition, the Company agreed to pay an earn-out of up to an aggregate amount of $18.0 million in cash over the three calendar years following the acquisition based upon the achievement of certain financial performance criteria, which was accrued and recorded as goodwill as of December 31, 2012. In 2013, 2014 and 2015, Maui did not achieve the minimum prescribed earn-out targets, therefore the reversals of the earn-out of $6.0 million, $5.9 million and $5.6 million, respectively, was recorded as other income. Maui is a leading manufacturer and distributor of spring and summer activity toys and impulse toys and was included in the Company’s results of operations from the date of acquisition.

In September 2012, the Company acquired all of the stock of JKID, LTD., a United Kingdom corporation for an initial cash consideration of $1.1 million and deferred cash payments of $5.5 million payable in five semi-annual payments of $1.1 million each. In addition, the Company agreed to pay additional compensation of up to an aggregate amount of $4.4 million in cash over the two year period of 2015 through 2016, based upon the achievement of certain financial performance criteria, which will be accrued and charged to expense when and if it is earned. JKID is the developer of augmented reality technology that enhances the play patterns of toys and consumer products.

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Goodwill

12 Months Ended

Dec. 31, 2015

Goodwill

Note 6—Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2015 are as follows (in thousands):

	Traditional Toys and Electronics			Role Play, Novelty and Seasonal Toys		Total
Balance, January 1, 2014:
Goodwill	$	25,265		$	19,611	$	44,876
Adjustments to goodwill for foreign currency translation		(384	)		—		(384	)
Balance December 31, 2014:	$	24,881		$	19,611	$	44,492
Balance, January 1, 2015:
Goodwill	$	24,881		$	19,611	$	44,492
Adjustments to goodwill for foreign currency translation		(293	)		—		(293	)
Balance December 31, 2015:	$	24,588		$	19,611	$	44,199

The Company assesses goodwill and indefinite-lived intangible assets for impairment on an annual basis by reviewing relevant qualitative and quantitative factors. More frequent evaluations may be required if the Company experiences changes in its business climate or as a result of other triggering events that take place. If carrying value exceeds fair value, a possible impairment exists and further evaluation is performed.

The Company assessed its goodwill for impairment as of October 1, 2015 for each of its reporting units by evaluating qualitative factors, including, but not limited to, the performance of each reporting unit, general economic conditions, access to capital, the industry and competitive environment, the interest rate environment. The Company prepared step-one of its impairment model. The valuation of goodwill involves a high degree of judgment and uncertainty related to key assumptions. Due to the subjective nature of the impairment analysis, significant changes in the assumptions used to develop the estimate could materially affect the conclusion regarding the future cash flows necessary to support the valuation of goodwill.

Based on the Company’s assessment, it determined that the fair value of its reporting units were not less than the carrying amounts. As such, the Company determined there was no impairment to be recorded.

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Intangible Assets Other Than Goodwill

12 Months Ended

Dec. 31, 2015

Intangible Assets Other Than Goodwill

Note 7—Intangible Assets Other Than Goodwill

Intangible assets other than goodwill consist primarily of licenses, product lines, customer relationships and trademarks. Amortized intangible assets are included in intangibles in the accompanying balance sheets. Trademarks are disclosed separately in the accompanying balance sheets. Debt offering costs from the issuance of the Company’s convertible senior notes are included in other long term assets in the accompanying balance sheets. Intangible assets and debt issuance costs are as follows (in thousands, except for weighted useful lives):

			December 31, 2014							December 31, 2015
	Weighted Useful Lives		Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
	(Years)
Amortized Intangible Assets:
Licenses		4.96	$	91,488	$	(85,113	)	$	6,375	$	91,488	$	(86,994	)	$	4,494
Product lines		5.74		66,594		(27,235	)		39,359		67,794		(32,077	)		35,717
Customer relationships		5.21		9,348		(7,831	)		1,517		9,348		(8,391	)		957
Trade names		5.00		3,000		(1,450	)		1,550		3,000		(2,050	)		950
Non-compete/ Employment contracts		3.90		3,333		(3,230	)		103		3,333		(3,266	)		67
Total amortized intangible assets				173,763		(124,859	)		48,904		174,963		(132,778	)		42,185
Deferred Costs:
Debt issuance costs		3.77		14,923		(6,418	)		8,505		11,433		(4,782	)		6,651
Unamortized Intangible Assets:
Trademarks				2,308		―			2,308		2,308		―			2,308
			$	190,994	$	(131,277	)	$	59,717	$	188,704	$	(137,560	)	$	51,144

For the years ended December 31, 2013, 2014, and 2015, the Company’s aggregate amortization expense related to intangible assets and deferred costs was $10.6 million, $10.5 million, and $10.0 million, respectively. The Company currently estimates continuing future amortization expense to be approximately (in thousands):

2016	$	11,780
2017		10,589
2018		7,667
2019		5,255
2020		4,592
Thereafter		8,953
	$	48,836

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Concentration of Credit Risk

12 Months Ended

Dec. 31, 2015

Concentration of Credit Risk

Note 8—Concentration of Credit Risk

Financial instruments that subject the Company to concentration of credit risk are cash and cash equivalents and accounts receivable. Cash equivalents consist principally of short-term money market funds. These instruments are short-term in nature and bear minimal risk. To date, the Company has not experienced losses on these instruments.

The Company performs ongoing credit evaluations of its customers’ financial conditions, but does not require collateral to support domestic customer accounts receivable. Most goods shipped FOB Hong Kong or China are secured with irrevocable letters of credit.

As of December 31, 2014 and 2015, the Company’s three largest customers accounted for approximately 29.8% and 56.2%, respectively, of net accounts receivable. The concentration of the Company’s business with a relatively small number of customers may expose the Company to material adverse effects if one or more of its large customers were to experience financial difficulty. The Company performs ongoing credit evaluations of its top customers and maintains an allowance for potential credit losses.

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Accrued Expenses

12 Months Ended

Dec. 31, 2015

Accrued Expenses

Note 9—Accrued Expenses

Accrued expenses consist of the following (in thousands):

	2014		2015
Royalties	$	34,378	$	21,599
Sales commissions		1,914		1,132
Bonuses		6,200		6,275
Professional fees		2,780		2,535
Acquisition earn-out		6,831		―
Salaries and employee benefits		149		185
Interest expense		2,675		2,333
Unearned revenue		1,379		1,720
Molds and tools		2,093		2,669
Reorganization costs		1,626		90
Media expense		5,846		―
Inventory liabilities		6,898		6,754
Goods in transit		3,743		2,736
Preference claims		1,017		―
Other		9,445		6,053
	$	86,974	$	54,081

In addition to royalties currently payable on the sale of licensed products during the quarter, the Company records a liability as Accrued Royalties for the estimated shortfall in achieving minimum royalty guarantees pursuant to certain license agreements (Note 16).

The Company incurred reorganization charges in the fourth quarter of 2009 and 2013 to consolidate and stream-line its existing business functions. Reorganization charges relate to the termination of lease obligations, one-time severance termination benefits, property and equipment impairments and other contract terminations and are accounted for in accordance with “Exit and Disposal Cost Obligations” ASC 420-10.

These rental property reorganization charges relate to the Company's Traditional Toys and Electronics segment. The components of the rental property reorganization charges are as follows (in thousands):

	Accrued Balance							Accrued Balance
	December 31, 2014		Accrual		Payments			December 31, 2015
2013 lease abandonment costs	$	1,258	$	―	$	(1,168	)	$	90
2009 lease abandonment costs		368		―		(368	)		―
Total reorganization charges	$	1,626	$	―	$	(1,536	)	$	90

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Related Party Transactions

12 Months Ended

Dec. 31, 2015

Related Party Transactions

Note 10—Related Party Transactions

A director of the Company is a partner in a law firm that acts as counsel to the Company. The Company incurred legal fees and expenses to the law firm in the amount of approximately $3.0 million in 2013, $2.4 million in 2014 and $3.1 million in 2015. As of December 31, 2014 and 2015, legal fees and reimbursable expenses of $0.6 million and $1.6 million, respectively, were payable to this law firm.

The owner of Nantworks, the Company’s DreamPlay Toys joint venture partner, beneficially owns 25.2% of the Company’s outstanding common stock, which includes 1.5 million shares underlying out-of-the-money stock warrants. Pursuant to the joint venture agreements, the Company is obligated to pay Nantworks a preferred return on joint venture sales.

For the years ended December 31, 2013, 2014 and 2015, preferred returns of $188,000, $821,939 and $718,767, respectively, were earned and payable to Nantworks. Pursuant to the amended Toy Services Agreement, Nantworks is entitled to receive a renewal fee in the amount $1.2 million payable in installments of $0.8 million paid on the effective date of the renewal in 2015 and $0.2 million on or before each of August 1, 2016 and 2017. As of December 31, 2014 and 2015, the Company has a receivable from Nantworks in the amount of $0.6 million and $0.6 million, respectively. In addition, the Company previously leased office space from Nantworks. Rent expense, including common area maintenance and parking, for the years ended December 31, 2013, 2014 and 2015 was $0.8 million, $1.3 million and $0.1 million, respectively.

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Credit Facility

12 Months Ended

Dec. 31, 2015

Credit Facility

Note 11—Credit Facility

In March 2014, the Company and its domestic subsidiaries entered into a secured credit facility with General Electric Capital Corporation (the “GE Loan Agreement”). The GE Loan Agreement, as amended, provides for a $75.0 million revolving credit facility subject to availability based on prescribed advance rates on certain accounts receivable and inventory. The amounts outstanding under the revolving credit facility are payable in full upon maturity of the revolving credit facility on March 27, 2019. The revolving credit facility is secured by a security interest in favor of the lender covering a substantial amount of the assets of the Company. The amount outstanding on the revolving credit facility as of December 31, 2014 and 2015 is nil and nil, respectively. The total borrowing capacity as of December 31, 2014 and 2015 was approximately $67.1 million and $55.5 million, respectively.

The Company’s ability to borrow under the GE Loan Agreement is also subject to its ongoing compliance with certain financial covenants, including that the Company and its domestic subsidiaries maintain a fixed charge coverage ratio of at least 1.2:1.0 based on the trailing four quarters.

The GE Loan Agreement allows the Company to borrow under the revolving credit facility at LIBOR or at a base rate, plus applicable margins of 225 basis point spread over LIBOR and 125 basis point spread on base rate loans. In addition to standard fees, the revolving credit facility has an unused line fee based on the unused amount of the credit facility, ranging from 25 to 50 basis points. As of December 31, 2015, the rate on the revolving credit facility was 2.25%.

The GE Loan Agreement also contains customary events of default, including a cross default provision and a change of control provision. In the event of a default, all of the obligations of the Company and its subsidiaries under the GE Loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.

As of December 31, 2015, the Company has outstanding letters of credit in the aggregate amount of $23.2 million.

As of December 31, 2015, the Company was in compliance with the financial covenants under the GE Loan Agreement.

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Convertible Senior Notes

12 Months Ended

Dec. 31, 2015

Convertible Senior Notes

Note 12—Convertible Senior Notes

Convertible senior notes consist of the following (in thousands):

	December 31,
	2014		2015
4.25% Convertible senior notes (due 2018)	$	100,000	$	100,000
4.875% Convertible senior notes (due 2020)		115,000		115,000
	$	215,000	$	215,000

In November 2009, the Company sold an aggregate of $100.0 million principal amount of the 2014 Notes. The 2014 Notes, which were senior unsecured obligations of the Company, paid cash interest semi-annually at a rate of 4.50% per annum and matured on November 1, 2014. In July 2013, the Company repurchased an aggregate of $61.0 million principal amount of these notes at par plus accrued interest with a portion of the net proceeds from the issuance of $100.0 million principal amount of 4.25% convertible senior notes due 2018 resulting in a gain on extinguishment of $0.1 million. The remainder of these notes were redeemed at par at maturity on November 1, 2014.

ASC 470-20, “Debt with Conversion and Other Options,” requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) upon conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. In accordance with ASC 470-20, the Company allocated $13.7 million of the $100.0 million principal amount of the 2014 Notes to the equity component, which represents a discount to the debt that was being amortized to interest expense through November 1, 2014. Interest expense associated with the amortization of the discount was $2.0 million, $0.9 million, and nil for December 31, 2013, 2014 and 2015. The Company repurchased $61.0 million of the 2014 Notes during the year ended December 31, 2013 as discussed below, with $2.8 million of the price allocated to the repurchase of the related equity component. In addition, approximately $2.2 million of the unamortized debt discount and $0.6 million of debt issuance costs were written off in connection with the repurchase of the 2014 Notes. The remaining aggregate $39.0 million of principal amount of the 2014 Notes were redeemed at par at maturity on November 1, 2014. The balance of the discount was nil at December 31, 2014 and December 31, 2015.

In July 2013, the Company sold an aggregate of $100.0 million principal amount of the 2018 Notes. The 2018 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on August 1 and February 1 of each year at a rate of 4.25% per annum and will mature on August 1, 2018. The initial conversion rate for the 2018 Notes will be 114.3674 shares of the Company’s common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $8.74 per share of common stock, subject to adjustment in certain events. Holders of the 2018 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2018 Notes will be settled in shares of the Company’s common stock. The Company used $61.0 million of the approximate $96.0 million in net proceeds from the offering to repurchase at par $61.0 million principal amount of the 2014 Notes. The remainder of the net proceeds will be used for general corporate purposes.

In June 2014, the Company sold an aggregate of $115.0 million principal amount of 4.875% Convertible Senior Notes due 2020 (the “2020 Notes”). The 2020 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on June 1 and December 1 of each year at a rate of 4.875% per annum and will mature on June 1, 2020. The initial conversion rate for the 2020 Notes will be 103.7613 shares of our common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $9.64 per share of common stock, subject to adjustment in certain events. Holders of the 2020 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2020 Notes will be settled in shares of the Company’s common stock. The Company received net proceeds of approximately $110.4 million from the offering of which $24.0 million was used to repurchase 3.1 million shares of the Company’s common stock under a prepaid forward purchase contract and $39.0 million was used to redeem at par the remaining outstanding principal amount of the 2014 Notes at maturity on November 1, 2014. The remainder of the net proceeds will be used for general corporate purposes. In January 2016 the Company repurchased $2.0 million of the 2020 Notes.

Key components of the 4.50% convertible senior notes due 2014 consist of the following (in thousands):

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense on the coupon	$	3,356	$	1,463	$	―
Amortization of debt discount and debt issuance costs recognized as interest expense		2,030		1,140		―
	$	5,386	$	2,603	$	―

Key components of the 4.25% convertible senior notes due 2018 consist of the following (in thousands):

	December 31,
	2014		2015
Principal amount of notes	$	100,000	$	100,000
Net carrying amount of the 2018 convertible notes	$	100,000	$	100,000

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense	$	1,771	$	4,250	$	4,250
Amortization of debt issuance costs recognized as interest expense		421		835		836
	$	2,192	$	5,085	$	5,086

Key components of the 4.875% convertible senior notes due 2020 consist of the following (in thousands):

	December 31,
	2014		2015
Principal amount of notes	$	115,000	$	115,000
Net carrying amount of the 2020 convertible notes	$	115,000	$	115,000

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense	$	—	$	3,135	$	5,606
Amortization of debt issuance costs recognized as interest expense		—		473		811
	$	—	$	3,608	$	6,417

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Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes

Note 13—Income Taxes

The Company does not file a consolidated return with its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective jurisdiction.

For the years ended 2013, 2014 and 2015, the provision for income taxes, which included federal, state and foreign income taxes, was an expense of $2.6 million, $3.7 million, and $3.4 million reflecting effective tax provision rates of (5.1%), 14.7% and 12.9%, respectively.

For the year ended 2013 and 2014, provision for income taxes includes federal, state and foreign income taxes at effective tax rates of (5. l %) and 14.7%. Exclusive of discrete items, the effective tax provision rate would be (5.8%) in 2013 and 13.6% in 2014. The decrease in the effective rate absent discrete items was primarily due to the foreign rate differential between the United States and Hong Kong. The rate exclusive of discrete items can be materially impacted by the proportion of Hong Kong earnings to consolidated earnings.

The 2015 tax expense of $3.4 million included a discrete tax expense of $0.9 million primarily comprised of return to provision adjustments. Absent these discrete tax expenses, the Company’s effective tax rate for 2015 was 9.5%; primarily due to a full valuation allowance on the Company’s United States deferred tax assets and the foreign rate differential, and is impacted by the proportion of Hong Kong earnings to overall earnings and is expected to vary depending on the level of consolidated earnings.

For years ended 2014 and 2015, the Company had net deferred tax liabilities of approximately $2.6 million and $2.3 million, respectively, related to foreign jurisdictions.

Provision for income taxes reflected in the accompanying consolidated statements of operations are comprised of the following (in thousands):

	2013			2014			2015
Federal	$	(1,862	)	$	(4	)	$	—
State and local		(390	)		287			708
Foreign		4,894			3,887			3,044
Total Current		2,642			4,170			3,752
APIC		(160	)		(84	)		—
Deferred		129			(371	)		(329	)
Total	$	2,611		$	3,715		$	3,423

The components of deferred tax assets/(liabilities) are as follows (in thousands):

	2014			2015
Net deferred tax assets/(liabilities):
Current:
Reserve for sales allowances and possible losses	$	1,034		$	797
Accrued expenses		8,231			1,252
Prepaid royalties		16,322			13,869
Accrued royalties		5,029			4,178
Inventory		4,065			3,495
State income taxes		(8,206	)		(7,231	)
Other		709			487
Gross current		27,184			16,847
Valuation allowance		(23,826	)		(19,586	)
Net current		3,358			(2,739	)
Long Term:
Federal and state net operating loss carryforwards		29,383			37,473
Property and equipment		4,542			4,039
Original issue discount interest		(13,561	)		(10,419	)
Goodwill and intangibles		43,269			36,990
Share based compensation		2,309			2,487
Other		11,037			11,228
Gross long-term		76,979			81,798
Valuation allowance		(82,959	)		(81,352	)
Net long-term		(5,980	)		446
Total net deferred tax assets/(liabilities)	$	(2,622	)	$	(2,293	)

Provision for income taxes varies from the U.S. federal statutory rate. The following reconciliation shows the significant differences in the tax at statutory and effective rates:

	2013			2014			2015
Federal income tax expense		35.0	%		35.0	%		35.0	%
State income tax expense, net of federal tax effect		6.2			―			1.0
Effect of differences in U.S. and Foreign statutory rates		4.8			(14.1	)		(9.4	)
Uncertain tax positions		0.4			―			0.3
Earn out adjustments		―			―			(7.4	)
Provision to return		―			―			12.2
Other		4.3			(0.4	)		1.6
Foreign deemed dividend		(45.3	)		―			1.7
Foreign tax credit		21.4			―			(0.5	)
Valuation allowance		(31.9	)		(5.8	)		(21.6	)
		(5.1	)%		14.7	%		12.9	%

Deferred taxes result from temporary differences between tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. The temporary differences result from costs required to be capitalized for tax purposes by the U.S. Internal Revenue Code (“IRC”), and certain items accrued for financial reporting purposes in the year incurred but not deductible for tax purposes until paid. The Company has established a full valuation allowance on net deferred tax assets in the United States since, in the opinion of management, it is not more likely than not that the U.S. net deferred tax assets will be realized.

The components of income (loss) before provision (benefit) for income taxes are as follows (in thousands):

	2013			2014		2015
Domestic	$	(66,470	)	$	5,358	$	11,692
Foreign		15,175			19,866		14,901
	$	(51,295	)	$	25,224	$	26,593

The Company has approximately $252 million of cumulative undistributed earnings of non-U.S. subsidiaries for which U.S. taxes have not been provided as of December 31, 2015. These earnings are intended to be permanently reinvested outside the U.S. If future events necessitate that these earnings should be repatriated to the U.S., an additional tax expense and related liability may be required. The determination of the amount of unrecognized U.S. deferred tax liability for undistributed earnings of non-U.S. subsidiaries is not practicable. The Company also does not provide deferred taxes on foreign currency translation adjustments under the indefinite reversal exception.

The Company uses a recognition threshold and measurement process for recording in the consolidated financial statements uncertain tax positions (“UTP”) taken or expected to be taken in a tax return.

$1.8 million of additional UTPs related to Hong Kong mold depreciation were recognized in 2015. In addition, approximately $2.1 million of California audit and R&D Credit based UTPs became de-recognized during 2015, due to the closing of a California income tax audit. These items were included in the 2015 income tax provision. During 2014, approximately $44,000 of the liability for UTP was de-recognized.

Current interest on uncertain income tax liabilities is recognized as interest expense and penalties are recognized in selling, general and administrative expenses in the consolidated statement of operations. During 2013, the Company recognized $120,000 of current year interest expense relating to UTPs. During 2014, the Company recognized $150,000 of current year interest expense relating to UTPs. During 2015, the Company did not recognize any current year interest expense relating to UTPs.

The following table provides further information of UTPs that would affect the effective tax rate, if recognized, as of December 31, 2015 (in millions):

Balance, January 1, 2013	$	4.8
Current year additions		0.3
Current year reduction due to lapse of applicable statute of limitations		(2.5	)
Balance, December 31, 2013		2.6
Current year additions		—
Current year reduction due to lapse of applicable statute of limitations		(0.1	)
Balance, December 31, 2014		2.5
Current year additions		1.8
Current year reduction due to audit settlement		(2.1	)
Balance, December 31, 2015	$	2.2

Tax years 2012 through 2014 remain subject to examination in the United States. The tax years 2010 through 2014 are generally still subject to examination in the various states. The tax years 2009 through 2014 are still subject to examination in Hong Kong. In the normal course of business, the Company is audited by federal, state, and foreign tax authorities. The U.S. Internal Revenue Service is not currently examining any of the tax years.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2015. Such objective evidence limits the ability to consider other subjective evidence such as the Company’s projections for future growth. The Company is required to establish a valuation allowance for the U.S. deferred tax assets and record a charge to income if Management determines, based upon available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.

For the three-year period ended December 31, 2015, the Company was in a cumulative pre-tax loss position in the U.S. On the basis of this evaluation, as of December 31, 2015, a valuation allowance of $100.9 million has been recorded against the U.S. deferred tax assets that more likely than not will not be realized. For the year ended December 31, 2015, the valuation allowance decreased by $5.9 million from $106.8 million at December 31, 2014 to $100.9 million at December 31, 2015. The net deferred tax liabilities of $2.3 million represent the net deferred tax liabilities in the foreign jurisdiction, where the Company is in a cumulative income position. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth.

At December 31, 2015, the Company had U.S. federal net operating loss carryforwards, or "NOLs," of approximately $76 million, which will begin to expire in 2031. At December 31, 2015, the Company's state NOLs were mainly from California. The majority of the approximately $110 million of California NOLs will begin to expire in 2031. At December 31, 2015, the Company had foreign tax credit carryforwards of approximately $12.6 million, which will begin to expire in 2022. At December 31, 2015, the Company had federal research and development tax credit carryforwards ("credit carryforwards") of approximately $0.5 million, which will begin to expire in 2029. At December 31, 2015, the Company had state research and development tax credits of approximately $140,000, which carry forward indefinitely. Utilization of certain NOLs and research credit carryforwards may be subject to an annual limitation due to ownership change limitations set forth in Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and comparable state income tax laws. Any future annual limitation may result in the expiration of NOLs and credit carryforwards before utilization.

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Leases

12 Months Ended

Dec. 31, 2015

Leases

Note 14—Leases

The Company leases office, warehouse and showroom facilities and certain equipment under operating leases. Rent expense for the years ended December 31, 2013, 2014 and 2015 totaled $14.4 million, $13.0 million, and $11.5 million, respectively. Including leases abandoned during 2013 and 2014, the following is a schedule of minimum annual lease payments (in thousands).

2016	$	12,729
2017		12,524
2018		9,248
2019		5,995
2020		3,997
Thereafter		11,892
	$	56,385

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Common Stock, Preferred Stock and Warrants

12 Months Ended

Dec. 31, 2015

Common Stock, Preferred Stock and Warrants

Note 15—Common Stock, Preferred Stock and Warrants

The Company has 105,000,000 authorized shares of stock consisting of 100,000,000 shares of $.001 par value common stock and 5,000,000 shares of $.001 par value preferred stock. On December 31, 2014 shares issued and outstanding were 22,682,295, and on December 31, 2015, shares issued and outstanding were 21,153,878.

All issuances of common stock, including those issued pursuant to stock option and warrant exercises, restricted stock grants and acquisitions, are issued from the Company’s authorized but not issued and outstanding shares.

During 2013, the Company declared a cash dividend of $0.07 per share to shareholders of record as of market close on March 15, 2013 and June 14, 2013. Cash paid for these dividends were approximately $1.5 million and $1.5 million, respectively. In July 2013, the dividend plan was suspended.

In January 2014, the Company issued an aggregate of 531,993 shares of restricted stock at a value of approximately $3.6 million to two executive officers, which vest, subject to certain company financial performance criteria, over a one to three year period. In addition, an aggregate of 78,150 shares of restricted stock were issued to its five non-employee directors, which vested in January 2015, at an aggregate value of approximately $0.5 million.

In June 2014, the Company effectively repurchased 3,112,840 shares of its common stock at an average cost of $7.71 per share for an aggregate amount of $24.0 million pursuant to a prepaid forward share repurchase agreement entered into with Merrill Lynch International (“ML”). These repurchased shares are treated as retired for basic and diluted EPS purposes although they remain legally outstanding. The Company reflects the aggregate purchase price of its common shares repurchased as a reduction to stockholders’ equity allocated to treasury stock. No shares have been delivered to the Company by ML as of December 31, 2015.

In January 2015, the Company issued an aggregate of 525,734 shares of restricted stock at a value of approximately $3.6 million to two executive officers, which vest, subject to certain company financial performance criteria and market conditions, over a one to three year period. In addition, an aggregate of 73,855 shares of restricted stock were issued to its five non-employee directors, which vest in January 2016, at an aggregate value of approximately $0.5 million.

In April 2015, the Company issued an aggregate of 135,234 shares of restricted stock at a value of approximately $0.9 million to an executive officer, which vests subject to certain company financial performance criteria and market conditions, over a one to three year period.

In June 2015, the Board of Directors authorized the repurchase of up to an aggregate of $30.0 million of the Company’s outstanding common stock and/or convertible notes (collectively, “securities”). The Company intends to retire any repurchased securities. As of December 31, 2015, the Company repurchased 1,547,361 shares of its common stock at an aggregate value of $13.2 million, of which 1,000,000 shares have been retired and cancelled. No convertible notes have been repurchased as of December 31, 2015.

No dividend was declared or paid in 2014 and 2015.

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Commitments

12 Months Ended

Dec. 31, 2015

Commitments

Note 16—Commitments

The Company has entered into various license agreements whereby the Company may use certain characters and intellectual properties in conjunction with its products. Generally, such license agreements provide for royalties to be paid at 1% to 20% of net sales with minimum guarantees and advance payments.

In the event the Company determines that a shortfall in achieving the minimum guarantee is likely, a liability is recorded for the estimated short fall and charged to royalty expense.

Future annual minimum royalty guarantees as of December 31, 2015 are as follows (in thousands):

2016	$	32,427
2017		28,696
2018		17,659
2019		10
	$	78,792

The Company has entered into employment and consulting agreements with certain executives expiring through December 31, 2018. The aggregate future annual minimum guaranteed amounts due under those agreements as of December 31, 2015 are as follows (in thousands):

2016	$	6,869
2017		5,324
2018		1,315
	$	13,508

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Share-Based Payments

12 Months Ended

Dec. 31, 2015

Share-Based Payments

Note 17—Share-Based Payments

Under its 2002 Stock Award and Incentive Plan (“the Plan”), which incorporated its Third Amended and Restated 1995 Stock Option Plan, the Company has reserved 6,525,000 shares of its common stock for issuance upon the exercise of options granted under the Plan, as well as for the awarding of other securities. Under the Plan, employees (including officers), non-employee directors and independent consultants may be granted options to purchase shares of common stock and other securities (Note 15). The vesting of these options and other securities may vary, but typically vest on a step-up basis over a maximum period of 4 years. Restricted shares typically vest in the same manner, with the exception of certain awards vesting over one to two years. Share-based compensation expense is recognized on a straight-line basis over the requisite service period. As of December 31, 2015, 708,123 shares were available for future grant. Additional shares may become available to the extent that options or shares of restricted stock presently outstanding under the Plan terminate or expire.

Restricted Stock

Under the Plan, share-based compensation payments may include the issuance of shares of restricted stock. Restricted stock award grants are based upon employment contracts, which vary by individual and year, and are subject to vesting conditions. Non-employee directors each receive grants of restricted stock at a value of $100,000 annually which vest after one year – this amount is prorated if a director is appointed within the year. In addition, at the discretion of Management and approval of the Board, non-executive employees also may receive restricted stock awards, which occurs approximately once per year.

During 2013, the Company issued a total of 996,990 shares of restricted stock, of which, 285,543 shares of restricted stock (with performance based vesting measures) were issued to two executive officers and were subsequently forfeited based upon the Company not meeting certain financial targets for the year. 54,227 shares were granted to its non-employee directors. The remaining 657,220 shares of restricted stock were granted to non-executive employees. The Company cancelled 4,582 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2013, certain employees, including an executive officer, surrendered an aggregate of 7,540 shares of restricted stock at a value of less than $0.1 million to cover income taxes on the vesting of shares. As of December 31, 2013, 721,752 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $5.0 million.

During 2014, the Company issued a total of 610,143 shares of restricted stock; of which 531,993 shares of restricted stock (with performance based vesting measures) were issued to two executive officers and were subsequently forfeited based upon the Company not meeting certain financial targets for the year. A total of 78,150 shares were granted to its non-employee directors. The Company cancelled 12,658 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2014, certain employees, including an executive officer, surrendered an aggregate of 51,877 shares of restricted stock at a value of less than $0.1 million to cover income taxes due on the vesting of restricted shares. As of December 31, 2014, 568,057 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $3.7 million.

During 2015, the Company issued a total of 734,823 shares of restricted stock; of which 660,968 shares of restricted stock (with performance based vesting measures) were issued to two executive officers. Of the 660,968 shares, a total of 612,221 were subsequently forfeited based upon the Company not meeting certain financial targets for the year. A total of 73,855 shares were granted to its non-employee directors. The Company cancelled 51,633 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2015, certain employees, including an executive officer, surrendered an aggregate of 52,024 shares of restricted stock for a nominal amount to cover income taxes due on the vesting of restricted shares. As of December 31, 2015, 411,409 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $2.7 million.

The following table summarizes the restricted stock award activity, annually, for the years ended December 31, 2013, 2014 and 2015:

	Restricted and Performance Based Stock Awards (RSA)
	Number of Shares			Weighted Average Fair Value
Outstanding, December 31, 2012		95,315		$	16.75
Awarded		996,990		$	8.38
Released		(80,428	)	$	16.46
Forfeited		(290,125	)	$	12.61
Outstanding, December 31, 2013		721,752		$	6.88
Awarded		610,143		$	6.72
Released		(219,187	)	$	7.99
Forfeited		(544,651	)	$	6.61
Outstanding, December 31, 2014		568,057		$	6.54
Awarded		734,823		$	6.81
Released		(227,616	)	$	6.60
Forfeited		(663,855	)	$	6.77
Outstanding, December 31, 2015		411,409		$	6.61

As of December 31, 2015, there was $1.8 million of total unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a weighted-average period of 1.85 years.

The following table summarizes the total share-based compensation expense and related tax benefits recognized (in thousands):

	Year Ended December 31,
	2013		2014		2015
Restricted stock compensation expense	$	1,085	$	1,473	$	1,562
Tax benefit related to restricted stock compensation	$	—	$	—	$	—

Stock Options

Share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee's requisite service period. For the three years in the period ending December 31, 2015, the Company incurred no expense related to stock options previously awarded.

The Company uses the Black-Scholes method of valuation for share-based option awards. In valuing the stock options, the Black-Scholes model incorporates assumptions about stock volatility, expected term of stock options, and risk free interest rate. The valuation is reduced by an estimate of stock option forfeitures.

Stock option activity pursuant to the Plan is summarized as follows:

				Weighted
				Average
	Number			Exercise
	of Shares			Price
Outstanding, December 31, 2012		134,644		$	19.82
Canceled		(7,500	)	$	13.39
Outstanding, December 31, 2013		127,144		$	20.20
Canceled		(52,144	)	$	19.50
Outstanding, December 31, 2014		75,000		$	20.69
Canceled		(75,000	)	$	20.69
Outstanding, December 31, 2015		-

Non-Employee Stock Warrants

In 2012, the Company granted 1,500,000 stock warrants with an exercise price of $16.28 per share and a five year term to a third party as partial consideration for the exclusive right to use certain recognition technology in connection with the Company’s toy products. The exercise price of the 2012 stock warrants is equal to the volume-weighted average price of the Company’s common stock over the five trading days preceding the date of grant. All warrants vested upon grant and are exercisable over the term of the warrants. At December 31, 2013, 2014 and 2015 all such stock warrants remained outstanding with an exercise price of $16.28 per share and an expiration date of September 12, 2017.

The Company measures the fair value of the warrants granted on the measurement date. The fair value of the 2012 stock warrant is capitalized as an intangible asset and will be amortized to expense in the consolidated statements of operations when the related product is released and the related net sales are recognized, which commenced in the third quarter of 2013.

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Employee Benefits Plan

12 Months Ended

Dec. 31, 2015

Employee Benefits Plan

Note 18—Employee Benefits Plan

The Company sponsors for its U.S. employees, a defined contribution plan under Section 401(k) of the Internal Revenue Code. The Plan provides that employees may defer up to 50% of their annual compensation subject to annual dollar limitations, and that the Company will make a matching contribution equal to 100% of each employee’s deferral, up to 5% of the employee’s annual compensation. Company matching contributions, which vest immediately, totaled $2.1 million, $1.9 million, and $2.2 million for the years ended December 31, 2013, 2014 and 2015, respectively.

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Supplemental Information to Consolidated Statements of Cash Flows

12 Months Ended

Dec. 31, 2015

Supplemental Information to Consolidated Statements of Cash Flows

Note 19—Supplemental Information to Consolidated Statements of Cash Flows

In 2013, certain employees – including an executive officer, surrendered an aggregate of 7,540 shares of restricted stock at a value of less than $0.1 million to cover their income taxes due on the 2013 vesting of the restricted shares granted them in 2009, 2010, 2011 and 2012. Additionally, the Company recognized a $0.2 million excess tax deficiency from the vesting of restricted stock.

In 2014, certain employees – including an executive officer, surrendered an aggregate of 51,877 shares of restricted stock at a value of less than $0.1 million to cover their income taxes due on the 2014 vesting of the restricted shares granted them in 2013 and prior. Additionally, the Company recognized a $0.1 million excess tax deficiency from the vesting of restricted stock.

In 2015, certain employees – including an executive officer, surrendered an aggregate of 52,024 shares of restricted stock for a nominal amount to cover their income taxes due on the 2015 vesting of the restricted shares granted them in 2014 and prior. Additionally, the Company recognized a nominal excess tax benefit from the vesting of restricted stock.

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Selected Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2015

Selected Quarterly Financial Data (Unaudited)

Note 20—Selected Quarterly Financial Data (Unaudited)

Selected unaudited quarterly financial data for the years 2014 and 2015 are summarized below. The Company has derived this data from the unaudited consolidated interim financial statements that, in the Company's opinion, have been prepared on substantially the same basis as the audited financial statements contained elsewhere in this report and include all normal recurring adjustments necessary for a fair presentation of the financial information for the periods presented. These unaudited quaterly results should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.

	2014										2015
	First			Second			Third		Fourth		First			Second			Third		Fourth
	Quarter			Quarter			Quarter		Quarter		Quarter			Quarter			Quarter		Quarter
	(in thousands, except per share data)
Net sales	$	82,510		$	124,172		$	349,362	$	254,016	$	114,201		$	131,106		$	337,027	$	163,407
Gross profit	$	23,555		$	37,818		$	94,737	$	79,697	$	35,378		$	39,287		$	104,329	$	49,575
Income (loss) from operations	$	(14,924	)	$	(4,819	)	$	43,812	$	7,258	$	(4,199	)	$	(3,008	)	$	44,628	$	(6,891	)
Income (loss) before provision (benefit) for income taxes	$	(16,789	)	$	(7,772	)	$	45,807	$	3,978	$	(7,154	)	$	(4,414	)	$	47,239	$	(9,078	)
Net income (loss)	$	(16,305	)	$	(9,053	)	$	44,069	$	2,798	$	(7,581	)	$	(5,727	)	$	45,864	$	(9,386	)
Basic earnings (loss) per share	$	(0.74	)	$	(0.43	)	$	2.33	$	0.14	$	(0.40	)	$	(0.30	)	$	2.47	$	(0.50	)
Weighted average shares outstanding		22,003			21,276			18,897		19,570		19,090			19,108			18,559		18,781
Diluted earnings (loss) per share	$	(0.74	)	$	(0.43	)	$	1.03	$	0.11	$	(0.40	)	$	(0.30	)	$	1.12	$	(0.50	)
Weighted average shares and equivalents outstanding		22,003			21,276			45,152		44,060		19,090			19,108			42,562		18,781

Quarterly and year-to-date computations of income (loss) per share amounts are made independently. Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for the year.

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Litigation

12 Months Ended

Dec. 31, 2015

Litigation

Note 21—Litigation

On July 25, 2013, a purported class action lawsuit was filed in the United States District Court for the Central District of California captioned Melot v. JAKKS Pacific, Inc. et al., Case No. CV13-05388 (JAK) against Stephen G. Berman, Joel M. Bennett (collectively the “Individual Defendants”), and the Company (collectively, “Defendants”). On July 30, 2013, a second purported class action lawsuit was filed containing similar allegations against Defendants captioned Dylewicz v. JAKKS Pacific, Inc. et al., Case No. CV13-5487 (OON). The two cases (collectively, the “Class Action”) were consolidated on December 2, 2013 under Case No. CV13-05388 JAK (SSx) and lead plaintiff and lead counsel appointed. On January 17, 2014, Plaintiff filed a consolidated class action complaint (the “First Amended Complaint”) against Defendants which alleged that the Company violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder by making false and/or misleading statements concerning Company financial projections and performance as part of its public filings and earnings calls from July 17, 2012 through July 17, 2013. Specifically, the First Amended Complaint alleged that the Company’s forward looking statements, guidance and other public statements were false and misleading for allegedly failing to disclose (i) certain alleged internal forecasts, (ii) the Company's alleged quarterly practice of laying off and rehiring workers, (iii) the Company's alleged entry into license agreements with guaranteed minimums the Company allegedly knew it was unable to meet; and (iv) allegedly poor performance of the Monsuno and Winx lines of products after their launch. The First Amended Complaint also alleged violations of Section 20(a) of the Exchange Act by Messrs. Berman and Bennett. The First Amended Complaint sought compensatory and other damages in an undisclosed amount as well as attorneys’ fees and pre-judgment and post-judgment interest. The Company filed a motion to dismiss the First Amended Complaint on February 17, 2014, and the motion was granted, with leave to replead. A Second Amended Complaint (“SAC”) was filed on July 8, 2014 and it set forth similar allegations to those in the First Amended Complaint about discrepancies between internal projections and public forecasts and the other allegations except that the claim with respect to guaranteed minimums that the Company allegedly knew it was unable to meet was eliminated. The Company filed a motion to dismiss the SAC and that motion was granted with leave to replead. A Third Amended Complaint (“TAC”) was filed on March 23, 2015 with similar allegations. The Company filed a motion to dismiss the TAC and that motion was argued on July 22, 2015; after argument it was taken on submission and a decision has not been issued. The foregoing is a summary of the pleadings and is subject to the text of the pleadings which are on file with the Court. We believe that the claims in the Class Action are without merit, and we intend to defend vigorously against them. However, because the Class Action is in a preliminary stage, we cannot assure you as to its outcome, or that an adverse decision in such action would not have a material adverse effect on our business, financial condition or results of operations.

On February 25, 2014, a shareholder derivative action was filed in the Central District of California by Advanced Advisors, G.P. against the Company, nominally, and against Messrs. Berman, Bennett, Miller, Skala, Glick, Ellin, Almagor, Poulsen and Reilly and Ms. Brodsky (Advanced Partners, G.P., v. Berman, et al., CV14-1420 (DSF)).On March 6, 2014, a second shareholder derivative action alleging largely the same claims against the same defendants was filed in the Central District of California by Louisiana Municipal Police Employees Retirement System (Louisiana Municipal Police Employees Retirement System v, Berman et al., CV14-1670 (GHF). On April 17, 2014, the cases were consolidated under Case No. 2:14-01420-JAK (SSx) (the “Derivative Action”). On April 30, 2014, a consolidated amended complaint (“CAC”) was filed, which alleged (i) a claim for contribution under Sections 10(b) and 21(D) of the Securities Exchange Act related to allegations made in the Class Action; (ii) derivative and direct claims for alleged violations of Section 14 of the Exchange Act and Rule 14a-9 promulgated thereunder related to allegedly misleading statements about Mr. Berman’s compensation plan in the Company’s October 25, 2013 proxy statement; (iii) derivative claims for breaches of fiduciary duty related to the Company’s response to an unsolicited indication of interest from Oaktree Capital, stock repurchase, standstill agreement with the Clinton Group, and decisions related to the NantWorks joint venture; and (iv) claims against Messrs. Berman and Bennett for breach of fiduciary duty related to the Class Action. The CAC seeks compensatory damages, pre-judgment and post-judgment interest, and declaratory and equitable relief. The foregoing is a summary of the CAC and is subject to the text of the CAC, which is on file with the Court. A motion to dismiss the CAC or, in the alternative, to stay the CAC, was filed in May 2014. The Court granted the motion in part and denied the motion in part with leave for plaintiff to file an amended pleading. Plaintiff declined to do so. Accordingly, claims i, ii and iv have been dismissed and only the elements of claim iii not relating to the NantWorks joint venture remain. Thus, there are no surviving claims against Messrs. Poulsen, Reilly and Bennett and Ms. Brodsky and the Court approved the parties’ stipulation to strike their names as defendants in the CAC. Pleadings in response to the CAC were filed on October 30, 2014, which are on file with the Court. The matter was referred to mediation by the Court and the parties, at the mediation, reached an agreement in principle to resolve the action. Thereafter the parties entered into a memorandum of such agreement, subject to Court approval. A motion was filed seeking preliminary approval of the settlement and establishment of the procedure for final approval of the settlement; preliminary approval of the settlement was granted and a hearing regarding final approval of the proposed settlement and attorneys’ fees in connection therewith took place on November 2, 2015. At the hearing, the Judge indicated that he would approve the settlement with a formal order, and that he would take the attorneys’ fee issue under advisement.

We are a party to, and certain of our property is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of our business, but we do not believe that any of these claims or proceedings will have a material effect on our business, financial condition or results of operations.

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Schedule II-Valuation And Qualifying Accounts

12 Months Ended

Dec. 31, 2015

Schedule II-Valuation And Qualifying Accounts

JAKKS PACIFIC, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2013, 2014 and 2015

Allowances are deducted from the assets to which they apply, except for sales returns and allowances.

	Balance at		Charged to						Balance
	Beginning		Costs and						at End
	of Period		Expenses			Deductions			of Period
	(In thousands)
Year ended December 31, 2013:
Allowance for:
Uncollectible accounts	$	2,536	$	541		$	(149	)	$	2,928
Reserve for potential product obsolescence		9,951		16,257			(16,721	)		9,487
Reserve for sales returns and allowances		34,373		37,727			(40,726	)		31,374
	$	46,860	$	54,525		$	(57,596	)	$	43,789
Year ended December 31, 2014:
Allowance for:
Uncollectible accounts	$	2,928	$	1,545		$	(1,209)		$	3,264
Reserve for potential product obsolescence		9,487		5,524			(7,134)			7,877
Reserve for sales returns and allowances		31,374		44,741			(51,638)			24,477
	$	43,789	$	51,810		$	(59,981)		$	35,618
Year ended December 31, 2015:
Allowance for:
Uncollectible accounts	$	3,264	$	(143	)	$	(407	)	$	2,714
Reserve for potential product obsolescence		7,877		1,511			(1,337	)		8,051
Reserve for sales returns and allowances		24,477		42,507			(49,717	)		17,267
	$	35,618	$	43,875		$	(51,461	)	$	28,032

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Principles of consolidation

Principles of consolidation

These consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and its majority owned joint venture. All intercompany transactions have been eliminated.

The Company entered into a joint venture with Meisheng Culture & Creative Corp., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed upon territories of the People’s Republic of China. The joint venture will include a subsidiary in the Shanghai Free Trade Zone that is expected to sell, distribute and market these products, which can include dolls, plush, role play products, action figures, costumes, seasonal items, technology and app-enhanced toys and many more, based on top entertainment licenses and JAKKS’ own proprietary brands. The Company owns fifty-one percent of the joint venture.

Cash and cash equivalents

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less, when acquired, to be cash equivalents. The Company maintains its cash in bank deposits which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk of cash and cash equivalents.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

Credit is granted to customers on an unsecured basis. Credit limits and payment terms are established based on extensive evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash generation, financing availability, and liquidity status of each customer. Customers are reviewed at least annually, with more frequent reviews performed as necessary, depending upon the customer’s financial condition and the level of credit being extended. For customers who are experiencing financial difficulties, management performs additional financial analyses before shipping to those customers on credit. The Company uses a variety of financial arrangements to ensure collectability of accounts receivable of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment.

The Company records an allowance for doubtful accounts based upon management’s assessment of the business environment, customers’ financial condition, historical collection experience, accounts receivable aging, customer disputes, and the collectability of specific customer accounts.

Use of estimates

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual future results could differ from those estimates.

Revenue recognition

Revenue recognition

Revenue is recognized upon the shipment of goods to customers or their agents, depending upon terms, provided there are no uncertainties regarding customer acceptance, the sales price is fixed or determinable and collectability is reasonably assured.

Generally the Company does not allow product returns. It provides its customers a negotiated allowance for breakage or defects, which is recorded when the related revenue is recognized. However, the Company does make occasional exceptions to this policy and consequently accrues a return allowance based upon historic return amounts and management estimates. The Company occasionally grants credits to facilitate markdowns and sales of slow moving merchandise. These credits are recorded as a reduction of gross sales at the time of the sale.

The Company’s reserve for sales returns and allowances decreased by $7.2 million from $24.5 million as of December 31, 2014 to $17.3 million as of December 31, 2015. This decrease was primarily due to certain customers taking their year-end allowances related to 2014 and 2015 during 2015, as well as reduced markdown allowances in 2015.

Fair value measurements

Fair value measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based upon these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2:	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3:	Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 31 (in thousands):

			Fair Value Measurements
	Carrying Amount as of		As of December 31, 2014
	December 31, 2014		Level 1		Level 2		Level 3
Cash equivalents	$	12,166	$	12,166	$	—	$	—
Marketable securities		220		220		—		—
	$	12,386	$	12,386	$	—	$	—

			Fair Value Measurements
	Carrying Amount as of		As of December 31, 2015
	December 31, 2015		Level 1		Level 2		Level 3
Cash equivalents	$	13,218	$	13,218	$	—	$	—
Marketable securities		—		—		—		—
	$	13,218	$	13,218	$	—	$	—

The Company’s accounts receivable, accounts payable and accrued expenses represent financial instruments. The carrying value of these financial instruments is a reasonable approximation of fair value.

The fair value of the 4.25% convertible senior notes payable due 2018 as of December 31, 2014 and 2015 was $96.3 million and $102.0 million respectively, based upon the most recent quoted market prices, and the fair value of the 4.875% convertible senior notes payable due 2020 as of December 31, 2014 and 2015 was $100.9 million and $112.3 million, respectively, based upon the most recent quoted market prices. The fair values of the convertible senior notes are considered to be Level 2 measurements on the fair value hierarchy.

For the years ended December 31, 2014 and 2015, there was no impairment to the value of the Company’s non-financial assets.

Inventory

Inventory

Inventory, which includes the ex-factory cost of goods, capitalized warehouse costs and in-bound freight and duty, is valued at the lower of cost (first-in, first-out) or market, net of inventory obsolescence reserve, and consists of the following (in thousands):

	December 31,
	2014		2015
Raw materials	$	1,040	$	3,717
Finished goods		77,787		56,827
	$	78,827	$	60,544

Property and equipment

Property and equipment

Property and equipment are stated at cost and are being depreciated using the straight-line method over their estimated useful lives as follows:

Office equipment	5 years
Automobiles	5 years
Furniture and fixtures	5 - 7 years
Leasehold improvements	Shorter of length of lease or 10 years

The Company uses the usage method as its depreciation methodology for molds and tools used in the manufacturing of its products, which is more closely correlated to production of goods. The Company believes that the usage method more accurately matches costs with revenues. Furthermore, the useful estimated life of molds and tools is two years.

For the years ended December 31, 2013, 2014, and 2015, the Company’s aggregate depreciation expense related to property and equipment was $11.8 million, $10.4 million, and $10.9 million, respectively.

Other Comprehensive Income (Loss)

Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes all changes in equity from non-owner sources. The Company accounts for other comprehensive income in accordance with Accounting Standards Codification (“ASC”) ASC 220, “Comprehensive Income.” All the activity in other comprehensive income (loss) and all amounts in accumulated other comprehensive income (loss) relate to foreign currency translation adjustments.

Advertising

Advertising

Production costs of commercials and programming are charged to operations in the period during which the production is first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the period incurred. Advertising expense for the years ended December 31, 2013, 2014 and 2015, was approximately $10.1 million, $19.3 million, and $15.8 million, respectively.

The Company also participates in cooperative advertising arrangements with certain customers, whereby it allows a discount from invoiced product amounts in exchange for customer purchased advertising that features the Company’s products. Typically, these discounts range from 1% to 6% of gross sales, and are generally based upon product purchases or specific advertising campaigns. Such amounts are accrued when the related revenue is recognized or when the advertising campaign is initiated. These cooperative advertising arrangements are accounted for as direct selling expenses.

Income taxes

Income taxes

The Company does not file a consolidated return with its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective jurisdictions. Deferred taxes are provided on an asset and liability method whereby deferred tax assets are recognized as deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Foreign Currency Translation Exposure

Foreign Currency Translation Exposure

The Company’s reporting currency is the US dollar. The translation of its net investment in subsidiaries with non-US dollar functional currencies subjects the Company to currency exchange rate fluctuations in its results of operations and financial position. Assets and liabilities of subsidiaries with non-US dollar functional currencies are translated into US dollars at year-end exchange rates. Income, expense, and cash flow items are translated at average exchange rates prevailing during the year. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss/gain within stockholders’ equity. The Company’s primary currency translation exposures in 2013, 2014 and 2015 were related to its net investment in entities having functional currencies denominated in the Hong Kong dollar.

Foreign Currency Transaction Exposure

Foreign Currency Transaction Exposure

Currency exchange rate fluctuations may impact the Company’s results of operations and cash flows. The Company’s currency transaction exposures include gains and losses realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable functional currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating activities are recorded in the components of operating income in the consolidated statement of operations. Inventory purchase transactions denominated in the Hong Kong dollar were the primary transactions that caused foreign currency transaction exposure for the Company in 2013, 2014 and 2015.

Accounting for the impairment of finite-lived tangible and intangible assets

Accounting for the impairment of finite-lived tangible and intangible assets

Long-lived assets with finite lives, which include property and equipment and intangible assets other than goodwill, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. Finite-lived intangible assets consist primarily of product technology rights, acquired backlog, customer relationships, product lines and license agreements. These intangible assets are amortized over the estimated economic lives of the related assets. There were no impairments for years ended December 31, 2013, 2014 and 2015.

Goodwill and other indefinite-lived intangible assets

Goodwill and other indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are not amortized, but are tested for impairment at least annually at the reporting unit level. Losses in value are recorded when material impairment has occurred in the underlying assets or when the benefits of the identified intangible assets are realized. Indefinite-lived intangible assets other than goodwill consist of trademarks.

The carrying value of goodwill and trademarks are based upon cost, which is subject to management’s current assessment of fair value. Management evaluates fair value recoverability using both objective and subjective factors. Objective factors include cash flows and analysis of recent sales and earnings trends. Subjective factors include management’s best estimates of projected future earnings and competitive analysis and the Company’s strategic focus.

For the years ended December 31, 2013, 2014 and 2015, there was no impairment to the value of the Company's goodwill or trademarks.

Share-based Compensation

Share-based Compensation

The Company measures all employee share-based compensation awards using a fair value method and records such expense in its consolidated financial statements. The Company recorded $1.1 million, $1.5 million, and $1.6 million of restricted stock expense, in 2013, 2014, and 2015, respectively. See Note 17 for further details relating to share based compensation.

Earnings per share

Earnings per share

The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted earnings per share (“EPS”) for the periods presented (in thousands, except per share data):

	2013
				Weighted
				Average
	Loss			Shares		Per Share
Basic EPS
Loss available to common stockholders	$	(53,906	)		22,200	$	(2.43	)
Effect of dilutive securities:
Assumed conversion of convertible senior notes		—			—
Options and warrants		—			—
Unvested restricted stock grants		—			—
Diluted EPS
Loss available to common stockholders plus assumed exercises and conversion	$	(53,906	)		22,200	$	(2.43	)

	2014
			Weighted
			Average
	Income		Shares		Per Share
Basic EPS
Income available to common stockholders	$	21,509		20,948	$	1.03
Effect of dilutive securities:
Assumed conversion of convertible senior notes		7,345		20,388
Options and warrants		—		—
Unvested restricted stock grants		—		180
Diluted EPS
Income available to common stockholders plus assumed exercises and conversion	$	28,854		41,516	$	0.70

	2015
			Weighted
			Average
	Income		Shares		Per Share
Basic EPS
Income available to common stockholders	$	23,254		19,435	$	1.20
Effect of dilutive securities:
Assumed conversion of convertible senior notes		7,385		23,369
Options and warrants		—		—
Unvested performance stock grants		—		347
Unvested restricted stock grants		—		170
Diluted EPS
Income available to common stockholders plus assumed exercises and conversion	$	30,639		43,321	$	0.71

Basic earnings per share is calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of warrants, options and convertible debt to the extent they are dilutive). For the years ended December 31, 2013, 2014 and 2015, the convertible notes interest and related common share equivalent of 10,037,523, nil and nil, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive. Potentially dilutive stock options and warrants of 1,627,144, 1,601,272 and 1,518,596 for the years ended December 31, 2013, 2014, and 2015, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive. Potentially dilutive restricted stock of 111,195, nil and nil for the years ended December 31, 2013, 2014 and 2015, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive.

The Company is also party to a prepaid forward contract to purchase 3,112,840 shares of its common stock that are to be delivered over a settlement period in 2020. The number of shares to be delivered under the prepaid forward contract has been removed from the weighted-average basic and diluted shares outstanding. Any dividends declared and paid on the shares underlying the forward contract are to be reverted back to the Company based on the contractual terms of the forward contract.

Debt with Conversion and Other Options

Debt with Conversion and Other Options

In July 2013, the Company sold an aggregate of $100.0 million principal amount of 4.25% Convertible Senior Notes due 2018 (the “2018 Notes”). The 2018 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on August 1 and February 1 of each year at a rate of 4.25% per annum and will mature on August 1, 2018. The initial conversion rate for the 2018 Notes will be 114.3674 shares of the Company’s common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $8.74 per share of common stock, subject to adjustment in certain events. Holders of the 2018 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2018 Notes will be settled in shares of the Company’s common stock.

In June 2014, the Company sold an aggregate of $115.0 million principal amount of 4.875% Convertible Senior Notes due 2020 (the “2020 Notes”). The 2020 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on June 1 and December 1 of each year at a rate of 4.875% per annum and will mature on June 1, 2020. The initial conversion rate for the 2020 Notes will be 103.7613 shares of our common per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $9.64 per share of common stock, subject to adjustment in certain events. Holders of the 2020 Notes may convert their notes upon the occurrence of specified events. Upon conversion, the 2020 Notes will be settled in shares of the Company’s common stock. The Company received net proceeds of approximately $110.4 million from the offering of which $24.0 million was used to repurchase 3.1 million shares of the Company’s common stock under a prepaid forward purchase contract. In January 2016 the Company repurchased $2.0 million of the 2020 Notes.

In June 2014, the Company effectively repurchased 3,112,840 shares of its common stock at an average cost of $7.71 per share for an aggregate amount of $24.0 million pursuant to a prepaid forward share repurchase agreement entered into with Merrill Lynch International (“ML”). These repurchased shares are treated as retired for basic and diluted EPS purposes although they remain legally outstanding. The Company reflects the aggregate purchase price of its common shares repurchased as a reduction to stockholders’ equity allocated to treasury stock. Any dividends declared and paid on the shares underlying the forward contract are to be reverted back to the Company based on the contractual terms of the forward contract.

Reclassifications

Reclassifications

Certain reclassifications were made to the prior year consolidated financial statements to conform to current year presentation.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and has not yet determined the method by which we will adopt the standard in 2018.

In August 2014, the FASB amended the FASB Accounting Standards Codification and amended Subtopic 205-40, “Presentation of Financial Statements — Going Concern.” This amendment prescribes that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting periods beginning January 1, 2017. Upon adoption the Company will use this guidance to evaluate going concern.

In April 2015, the FASB issued Accounting Standards Update 2015-03, “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The amendment will be effective for our annual and interim reporting periods beginning January 1, 2016 and should be applied on a retrospective basis. The adoption of ASU 2015-03 will not have any impact on our results of operations, but will result in debt issuance costs being presented as a direct reduction from the carrying amount of debt liabilities.

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”). ASU 2015-11 requires inventory accounted for under the FIFO or average cost method to be measured using the lower of cost and net realizable value. The amendments are effective prospectively for fiscal years and for interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of the pending adoption of ASU 2015-11 on the consolidated financial statements.

In August 2015, the FASB issued Accounting Standards Update 2015-15, “Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”). ASU 2015-15 codifies an SEC staff announcement that entities are permitted to defer and present debt issuance costs related to line-of-credit arrangements as assets. The announcements were effective upon issuance. The adoption of ASU 2015-15 does not have any impact on The Company’s consolidated financial statements.

In November 2015, the FASB issued Accounting Standards Update. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU 2015-17 will have on its financial position or financial statement disclosures.

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of this new standard on its financial statements.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2015

Financial Assets Measured at Fair Value on Recurring Basis

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 31 (in thousands):

			Fair Value Measurements
	Carrying Amount as of		As of December 31, 2014
	December 31, 2014		Level 1		Level 2		Level 3
Cash equivalents	$	12,166	$	12,166	$	—	$	—
Marketable securities		220		220		—		—
	$	12,386	$	12,386	$	—	$	—

			Fair Value Measurements
	Carrying Amount as of		As of December 31, 2015
	December 31, 2015		Level 1		Level 2		Level 3
Cash equivalents	$	13,218	$	13,218	$	—	$	—
Marketable securities		—		—		—		—
	$	13,218	$	13,218	$	—	$	—

Net of Inventory Obsolescence Reserve

Inventory, which includes the ex-factory cost of goods, capitalized warehouse costs and in-bound freight and duty, is valued at the lower of cost (first-in, first-out) or market, net of inventory obsolescence reserve, and consists of the following (in thousands):

	December 31,
	2014		2015
Raw materials	$	1,040	$	3,717
Finished goods		77,787		56,827
	$	78,827	$	60,544

Property and Equipment, Estimated Useful Lives

Property and equipment are stated at cost and are being depreciated using the straight-line method over their estimated useful lives as follows:

Office equipment	5 years
Automobiles	5 years
Furniture and fixtures	5 - 7 years
Leasehold improvements	Shorter of length of lease or 10 years

Reconciliation of the Weighted-Average Shares Used in Computation of Basic and Diluted Earnings Per Share

The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted earnings per share (“EPS”) for the periods presented (in thousands, except per share data):

	2013
				Weighted
				Average
	Loss			Shares		Per Share
Basic EPS
Loss available to common stockholders	$	(53,906	)		22,200	$	(2.43	)
Effect of dilutive securities:
Assumed conversion of convertible senior notes		—			—
Options and warrants		—			—
Unvested restricted stock grants		—			—
Diluted EPS
Loss available to common stockholders plus assumed exercises and conversion	$	(53,906	)		22,200	$	(2.43	)

	2014
			Weighted
			Average
	Income		Shares		Per Share
Basic EPS
Income available to common stockholders	$	21,509		20,948	$	1.03
Effect of dilutive securities:
Assumed conversion of convertible senior notes		7,345		20,388
Options and warrants		—		—
Unvested restricted stock grants		—		180
Diluted EPS
Income available to common stockholders plus assumed exercises and conversion	$	28,854		41,516	$	0.70

	2015
			Weighted
			Average
	Income		Shares		Per Share
Basic EPS
Income available to common stockholders	$	23,254		19,435	$	1.20
Effect of dilutive securities:
Assumed conversion of convertible senior notes		7,385		23,369
Options and warrants		—		—
Unvested performance stock grants		—		347
Unvested restricted stock grants		—		170
Diluted EPS
Income available to common stockholders plus assumed exercises and conversion	$	30,639		43,321	$	0.71

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Business Segments, Geographic Data, Sales by Product Group and Major Customers (Tables)

12 Months Ended

Dec. 31, 2015

Information by Segment and Reconciliation to Reported Amounts

Information by segment and a reconciliation to reported amounts as of December 31, 2014 and 2015 and for the three years in the period ended December 31, 2015 are as follows (in thousands):

	Years Ended December 31,
	2013		2014		2015
Net Sales
Traditional Toys and Electronics	$	320,565	$	408,426	$	437,683
Role Play, Novelty and Seasonal Toys		312,360		401,634		308,058
	$	632,925	$	810,060	$	745,741

	Years Ended December 31,
	2013			2014		2015
Operating Income (Loss)
Traditional Toys and Electronics	$	(25,286	)	$	10,654	$	13,588
Role Play, Novelty and Seasonal Toys		(19,246	)		20,673		16,942
	$	(44,532	)	$	31,327	$	30,530

	Years Ended December 31,
	2013		2014		2015
Depreciation and Amortization Expense
Traditional Toys and Electronics	$	12,475	$	11,159	$	10,911
Role Play, Novelty and Seasonal Toys		8,939		7,812		7,949
	$	21,414	$	18,971	$	18,860

	December 31,
	2014		2015
Assets
Traditional Toys and Electronics	$	313,380	$	326,199
Role Play, Novelty and Seasonal Toys		248,402		179,701
	$	561,782	$	505,900

Information by Geographic Area

million in 2015 and substantially all of these assets are located in China. The following tables present information about the Company by geographic area as of December 31, 2014 and 2015 and for each of the three years in the period ended December 31, 2015 (in thousands):

	December 31,
	2014		2015
Long-lived Assets
China	$	8,816	$	10,172
United States		1,689		7,702
Hong Kong		591		561
	$	11,096	$	18,435

	Years Ended December 31,
	2013		2014		2015
Net Sales by Geographic Area
United States	$	524,193	$	653,497	$	542,101
Europe		48,585		67,027		117,313
Canada		25,125		33,040		32,587
Hong Kong		6,721		2,746		1,675
Other		28,301		53,750		52,065
	$	632,925	$	810,060	$	745,741

Net Sales to Major Customers

Net sales to major customers were as follows (in thousands, except for percentages):

	2013					2014					2015
			Percentage of					Percentage of					Percentage of
	Amount		Net Sales			Amount		Net Sales			Amount		Net Sales
Wal-Mart	$	135,223		21.4	%	$	165,777		20.5	%	$	163,333		21.9	%
Target		98,770		15.6			124,257		15.3			96,766		13.0
Toys ‘R’ Us		68,074		10.8			93,926		11.6			71,150		9.5
	$	302,067		47.8	%	$	383,960		47.4	%	$	331,249		44.4	%

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Joint Ventures (Tables)

12 Months Ended

Dec. 31, 2015

Balance of Investment in Joint Venture

As of December 31, 2014 and 2015, the balance of the investment in the Pacific Animation Partners joint venture includes the following components (in thousands):

	December 31,			December 31,
	2014			2015
Capital contributions	$	3,856		$	—
Equity in cumulative net loss		(3,856	)		—
Investment in joint venture	$	—		$	—

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Goodwill (Tables)

12 Months Ended

Dec. 31, 2015

Changes in Carrying Amount of Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2015 are as follows (in thousands):

	Traditional Toys and Electronics			Role Play, Novelty and Seasonal Toys		Total
Balance, January 1, 2014:
Goodwill	$	25,265		$	19,611	$	44,876
Adjustments to goodwill for foreign currency translation		(384	)		—		(384	)
Balance December 31, 2014:	$	24,881		$	19,611	$	44,492
Balance, January 1, 2015:
Goodwill	$	24,881		$	19,611	$	44,492
Adjustments to goodwill for foreign currency translation		(293	)		—		(293	)
Balance December 31, 2015:	$	24,588		$	19,611	$	44,199

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Intangible Assets Other Than Goodwill (Tables)

12 Months Ended

Dec. 31, 2015

Intangible Assets and Debt Issuance Costs

Intangible assets and debt issuance costs are as follows (in thousands, except for weighted useful lives):

			December 31, 2014							December 31, 2015
	Weighted Useful Lives		Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
	(Years)
Amortized Intangible Assets:
Licenses		4.96	$	91,488	$	(85,113	)	$	6,375	$	91,488	$	(86,994	)	$	4,494
Product lines		5.74		66,594		(27,235	)		39,359		67,794		(32,077	)		35,717
Customer relationships		5.21		9,348		(7,831	)		1,517		9,348		(8,391	)		957
Trade names		5.00		3,000		(1,450	)		1,550		3,000		(2,050	)		950
Non-compete/ Employment contracts		3.90		3,333		(3,230	)		103		3,333		(3,266	)		67
Total amortized intangible assets				173,763		(124,859	)		48,904		174,963		(132,778	)		42,185
Deferred Costs:
Debt issuance costs		3.77		14,923		(6,418	)		8,505		11,433		(4,782	)		6,651
Unamortized Intangible Assets:
Trademarks				2,308		―			2,308		2,308		―			2,308
			$	190,994	$	(131,277	)	$	59,717	$	188,704	$	(137,560	)	$	51,144

Future Amortization Expenses

The Company currently estimates continuing future amortization expense to be approximately (in thousands):

2016	$	11,780
2017		10,589
2018		7,667
2019		5,255
2020		4,592
Thereafter		8,953
	$	48,836

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Accrued Expenses (Tables)

12 Months Ended

Dec. 31, 2015

Accrued Expenses

Accrued expenses consist of the following (in thousands):

	2014		2015
Royalties	$	34,378	$	21,599
Sales commissions		1,914		1,132
Bonuses		6,200		6,275
Professional fees		2,780		2,535
Acquisition earn-out		6,831		―
Salaries and employee benefits		149		185
Interest expense		2,675		2,333
Unearned revenue		1,379		1,720
Molds and tools		2,093		2,669
Reorganization costs		1,626		90
Media expense		5,846		―
Inventory liabilities		6,898		6,754
Goods in transit		3,743		2,736
Preference claims		1,017		―
Other		9,445		6,053
	$	86,974	$	54,081

Components of Rental Property Reorganization Charges

The components of the rental property reorganization charges are as follows (in thousands):

	Accrued Balance							Accrued Balance
	December 31, 2014		Accrual		Payments			December 31, 2015
2013 lease abandonment costs	$	1,258	$	―	$	(1,168	)	$	90
2009 lease abandonment costs		368		―		(368	)		―
Total reorganization charges	$	1,626	$	―	$	(1,536	)	$	90

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Convertible Senior Notes (Tables)

12 Months Ended

Dec. 31, 2015

Convertible Senior Notes

Convertible senior notes consist of the following (in thousands):

	December 31,
	2014		2015
4.25% Convertible senior notes (due 2018)	$	100,000	$	100,000
4.875% Convertible senior notes (due 2020)		115,000		115,000
	$	215,000	$	215,000

4.50% Convertible senior notes (due 2014)

Components of Convertible Senior Notes

Key components of the 4.50% convertible senior notes due 2014 consist of the following (in thousands):

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense on the coupon	$	3,356	$	1,463	$	―
Amortization of debt discount and debt issuance costs recognized as interest expense		2,030		1,140		―
	$	5,386	$	2,603	$	―

4.25% Convertible Senior Notes (due 2018)

Components of Convertible Senior Notes

Key components of the 4.25% convertible senior notes due 2018 consist of the following (in thousands):

	December 31,
	2014		2015
Principal amount of notes	$	100,000	$	100,000
Net carrying amount of the 2018 convertible notes	$	100,000	$	100,000

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense	$	1,771	$	4,250	$	4,250
Amortization of debt issuance costs recognized as interest expense		421		835		836
	$	2,192	$	5,085	$	5,086

4.875% Convertible Senior Notes (due 2020)

Components of Convertible Senior Notes

Key components of the 4.875% convertible senior notes due 2020 consist of the following (in thousands):

	December 31,
	2014		2015
Principal amount of notes	$	115,000	$	115,000
Net carrying amount of the 2020 convertible notes	$	115,000	$	115,000

	Years Ended December 31,
	2013		2014		2015
Contractual interest expense	$	—	$	3,135	$	5,606
Amortization of debt issuance costs recognized as interest expense		—		473		811
	$	—	$	3,608	$	6,417

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Provision for Income Tax

Provision for income taxes reflected in the accompanying consolidated statements of operations are comprised of the following (in thousands):

	2013			2014			2015
Federal	$	(1,862	)	$	(4	)	$	—
State and local		(390	)		287			708
Foreign		4,894			3,887			3,044
Total Current		2,642			4,170			3,752
APIC		(160	)		(84	)		—
Deferred		129			(371	)		(329	)
Total	$	2,611		$	3,715		$	3,423

Components of Deferred Tax Assets (Liabilities)

The components of deferred tax assets/(liabilities) are as follows (in thousands):

	2014			2015
Net deferred tax assets/(liabilities):
Current:
Reserve for sales allowances and possible losses	$	1,034		$	797
Accrued expenses		8,231			1,252
Prepaid royalties		16,322			13,869
Accrued royalties		5,029			4,178
Inventory		4,065			3,495
State income taxes		(8,206	)		(7,231	)
Other		709			487
Gross current		27,184			16,847
Valuation allowance		(23,826	)		(19,586	)
Net current		3,358			(2,739	)
Long Term:
Federal and state net operating loss carryforwards		29,383			37,473
Property and equipment		4,542			4,039
Original issue discount interest		(13,561	)		(10,419	)
Goodwill and intangibles		43,269			36,990
Share based compensation		2,309			2,487
Other		11,037			11,228
Gross long-term		76,979			81,798
Valuation allowance		(82,959	)		(81,352	)
Net long-term		(5,980	)		446
Total net deferred tax assets/(liabilities)	$	(2,622	)	$	(2,293	)

Significant Differences in Tax at Statutory and Effective Rates

Provision for income taxes varies from the U.S. federal statutory rate. The following reconciliation shows the significant differences in the tax at statutory and effective rates:

	2013			2014			2015
Federal income tax expense		35.0	%		35.0	%		35.0	%
State income tax expense, net of federal tax effect		6.2			―			1.0
Effect of differences in U.S. and Foreign statutory rates		4.8			(14.1	)		(9.4	)
Uncertain tax positions		0.4			―			0.3
Earn out adjustments		―			―			(7.4	)
Provision to return		―			―			12.2
Other		4.3			(0.4	)		1.6
Foreign deemed dividend		(45.3	)		―			1.7
Foreign tax credit		21.4			―			(0.5	)
Valuation allowance		(31.9	)		(5.8	)		(21.6	)
		(5.1	)%		14.7	%		12.9	%

Income (Loss) Before Provision (benefit) for Income Tax

The components of income (loss) before provision (benefit) for income taxes are as follows (in thousands):

	2013			2014		2015
Domestic	$	(66,470	)	$	5,358	$	11,692
Foreign		15,175			19,866		14,901
	$	(51,295	)	$	25,224	$	26,593

Effective Tax Rate

The following table provides further information of UTPs that would affect the effective tax rate, if recognized, as of December 31, 2015 (in millions):

Balance, January 1, 2013	$	4.8
Current year additions		0.3
Current year reduction due to lapse of applicable statute of limitations		(2.5	)
Balance, December 31, 2013		2.6
Current year additions		—
Current year reduction due to lapse of applicable statute of limitations		(0.1	)
Balance, December 31, 2014		2.5
Current year additions		1.8
Current year reduction due to audit settlement		(2.1	)
Balance, December 31, 2015	$	2.2

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Leases (Tables)

12 Months Ended

Dec. 31, 2015

Minimum Annual Lease Payments

Including leases abandoned during 2013 and 2014, the following is a schedule of minimum annual lease payments (in thousands).

2016	$	12,729
2017		12,524
2018		9,248
2019		5,995
2020		3,997
Thereafter		11,892
	$	56,385

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Commitments (Tables)

12 Months Ended

Dec. 31, 2015

Future Annual Minimum Guaranteed Amount

The aggregate future annual minimum guaranteed amounts due under those agreements as of December 31, 2015 are as follows (in thousands):

2016	$	6,869
2017		5,324
2018		1,315
	$	13,508

Royalty Payments

Future Annual Minimum Guaranteed Amount

Future annual minimum royalty guarantees as of December 31, 2015 are as follows (in thousands):

2016	$	32,427
2017		28,696
2018		17,659
2019		10
	$	78,792

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Share-Based Payments (Tables)

12 Months Ended

Dec. 31, 2015

Restricted Stock Award Activity

The following table summarizes the restricted stock award activity, annually, for the years ended December 31, 2013, 2014 and 2015:

	Restricted and Performance Based Stock Awards (RSA)
	Number of Shares			Weighted Average Fair Value
Outstanding, December 31, 2012		95,315		$	16.75
Awarded		996,990		$	8.38
Released		(80,428	)	$	16.46
Forfeited		(290,125	)	$	12.61
Outstanding, December 31, 2013		721,752		$	6.88
Awarded		610,143		$	6.72
Released		(219,187	)	$	7.99
Forfeited		(544,651	)	$	6.61
Outstanding, December 31, 2014		568,057		$	6.54
Awarded		734,823		$	6.81
Released		(227,616	)	$	6.60
Forfeited		(663,855	)	$	6.77
Outstanding, December 31, 2015		411,409		$	6.61

Total Share-Based Compensation Expense and Related Tax Benefits Recognized

The following table summarizes the total share-based compensation expense and related tax benefits recognized (in thousands):

	Year Ended December 31,
	2013		2014		2015
Restricted stock compensation expense	$	1,085	$	1,473	$	1,562
Tax benefit related to restricted stock compensation	$	—	$	—	$	—

Stock Option Activity Pursuant to Plan

Stock option activity pursuant to the Plan is summarized as follows:

				Weighted
				Average
	Number			Exercise
	of Shares			Price
Outstanding, December 31, 2012		134,644		$	19.82
Canceled		(7,500	)	$	13.39
Outstanding, December 31, 2013		127,144		$	20.20
Canceled		(52,144	)	$	19.50
Outstanding, December 31, 2014		75,000		$	20.69
Canceled		(75,000	)	$	20.69

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Selected Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2015

Quarterly Financial Data

Selected unaudited quarterly financial data for the years 2014 and 2015 are summarized below. The Company has derived this data from the unaudited consolidated interim financial statements that, in the Company's opinion, have been prepared on substantially the same basis as the audited financial statements contained elsewhere in this report and include all normal recurring adjustments necessary for a fair presentation of the financial information for the periods presented. These unaudited quaterly results should be read in conjunction with the financial statements and notes thereto included elsewhere in this report. The operating results in any quarter are not necessarily indicative of the results that may be expected for any future period.

	2014										2015
	First			Second			Third		Fourth		First			Second			Third		Fourth
	Quarter			Quarter			Quarter		Quarter		Quarter			Quarter			Quarter		Quarter
	(in thousands, except per share data)
Net sales	$	82,510		$	124,172		$	349,362	$	254,016	$	114,201		$	131,106		$	337,027	$	163,407
Gross profit	$	23,555		$	37,818		$	94,737	$	79,697	$	35,378		$	39,287		$	104,329	$	49,575
Income (loss) from operations	$	(14,924	)	$	(4,819	)	$	43,812	$	7,258	$	(4,199	)	$	(3,008	)	$	44,628	$	(6,891	)
Income (loss) before provision (benefit) for income taxes	$	(16,789	)	$	(7,772	)	$	45,807	$	3,978	$	(7,154	)	$	(4,414	)	$	47,239	$	(9,078	)
Net income (loss)	$	(16,305	)	$	(9,053	)	$	44,069	$	2,798	$	(7,581	)	$	(5,727	)	$	45,864	$	(9,386	)
Basic earnings (loss) per share	$	(0.74	)	$	(0.43	)	$	2.33	$	0.14	$	(0.40	)	$	(0.30	)	$	2.47	$	(0.50	)
Weighted average shares outstanding		22,003			21,276			18,897		19,570		19,090			19,108			18,559		18,781
Diluted earnings (loss) per share	$	(0.74	)	$	(0.43	)	$	1.03	$	0.11	$	(0.40	)	$	(0.30	)	$	1.12	$	(0.50	)
Weighted average shares and equivalents outstanding		22,003			21,276			45,152		44,060		19,090			19,108			42,562		18,781

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Principal Industry - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2015
Nature Of Operations [Line Items]
Primary business operation commenced date	1995-07

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Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended			12 Months Ended
	Jan. 31, 2016	Jun. 30, 2014	Jul. 31, 2013	Dec. 31, 2015	Dec. 31, 2014	Nov. 01, 2014	Dec. 31, 2013
Significant Accounting Policies [Line Items]
Reserve for sales returns and allowances				$ 17,267	$ 24,477
Decrease reserve for sales returns and allowances				(7,210)	(6,897)		$ (2,999)
Depreciation expense				10,900	10,400		11,800
Advertising expenses				15,800	19,300		10,100
Restricted stock compensation expense				$ 1,562	1,473		1,085
Prepaid forward contract, settlement year				2020
Repurchase of notes					39,000		$ 61,000
Repurchase of common stock under prepaid forward repurchase agreement, shares		3,112,840
Repurchase of common stock, average price per share		$ 7.71
Payment for repurchase of common stock		$ 24,000		$ 13,193	$ 24,000
Convertible Senior Notes
Significant Accounting Policies [Line Items]
Potentially dilutive securities excluded from computation of diluted earnings per common share				0	0		10,037,523
Options and Warrants
Significant Accounting Policies [Line Items]
Potentially dilutive securities excluded from computation of diluted earnings per common share				1,518,596	1,601,272		1,627,144
Restricted Stock
Significant Accounting Policies [Line Items]
Potentially dilutive securities excluded from computation of diluted earnings per common share				0	0		111,195
Minimum
Significant Accounting Policies [Line Items]
Discount on invoiced amount of products				1.00%
Maximum
Significant Accounting Policies [Line Items]
Discount on invoiced amount of products				6.00%
Molds and tools
Significant Accounting Policies [Line Items]
Property and equipment useful life				2 years
4.25% Convertible Senior Notes (due 2018)
Significant Accounting Policies [Line Items]
Convertible senior note payable, fair value				$ 102,000	$ 96,300
Debt instrument, interest rate			4.25%	4.25%	4.25%
Debt instrument, maturity year				2018	2018
Long term debt, face amount			$ 100,000
Debt instrument, maturity date			Aug. 01, 2018
Frequency of interest payment				Semi-annually
Conversion rate in share per $1000 principal amount of notes			114.3674
Debt instrument, conversion rate			$ 8.74
Net proceeds from debt instrument			$ 96,000
4.875% Convertible Senior Notes (due 2020)
Significant Accounting Policies [Line Items]
Convertible senior note payable, fair value				$ 112,300	$ 100,900
Debt instrument, interest rate		4.875%		4.875%	4.875%
Debt instrument, maturity year				2020	2020
Long term debt, face amount		$ 115,000
Debt instrument, maturity date		Jun. 01, 2020
Frequency of interest payment				Semi-annually
Conversion rate in share per $1000 principal amount of notes		103.7613
Debt instrument, conversion rate		$ 9.64
Net proceeds from debt instrument		$ 110,400
Repurchase of notes						$ 39,000
Repurchase of common stock under prepaid forward repurchase agreement, shares		3,100,000
Payment for repurchase of common stock		$ 24,000
4.875% Convertible Senior Notes (due 2020) | Subsequent Event
Significant Accounting Policies [Line Items]
Repurchase of notes	$ 2,000
Payment for repurchase of common stock	$ 2,000
Meisheng Culture & Creative Corp.
Significant Accounting Policies [Line Items]
Percentage of ownership interest in joint venture				51.00%

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Financial Assets Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Fair Value Measurements, Level 1
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Assets measured at fair value on recurring basis	$ 13,218	$ 12,386
Cash Equivalents | Fair Value Measurements, Level 1
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Assets measured at fair value on recurring basis	13,218	12,166
Marketable Securities | Fair Value Measurements, Level 1
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Assets measured at fair value on recurring basis		220
Carrying Amount
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Assets measured at fair value on recurring basis	13,218	12,386
Carrying Amount | Cash Equivalents
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Assets measured at fair value on recurring basis	$ 13,218	12,166
Carrying Amount | Marketable Securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Assets measured at fair value on recurring basis		$ 220

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Inventory Valued at Lower of Cost (First-in, First-out) or Market, Net of Inventory Obsolescence Reserve (Detail) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Inventory [Line Items]
Raw materials	$ 3,717	$ 1,040
Finished goods	56,827	77,787
Inventory, net	$ 60,544	$ 78,827

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Property and Equipment, Estimated Useful Lives (Detail)	12 Months Ended
	Dec. 31, 2015
Office Equipment
Finite-Lived Intangible Assets [Line Items]
Property and equipment useful life	5 years
Automobiles
Finite-Lived Intangible Assets [Line Items]
Property and equipment useful life	5 years
Furniture and Fixtures | Minimum
Finite-Lived Intangible Assets [Line Items]
Property and equipment useful life	5 years
Furniture and Fixtures | Maximum
Finite-Lived Intangible Assets [Line Items]
Property and equipment useful life	7 years
Leasehold Improvements
Finite-Lived Intangible Assets [Line Items]
Property and equipment useful life	Shorter of length of lease or 10 years

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Reconciliation of Weighted Average Shares Used in Computation of Basic and Diluted Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Earnings Per Share Disclosure [Line Items]
Income (Loss) available to common stockholders									$ 23,254	$ 21,509	$ (53,906)
Effect of dilutive securities, assumed conversion of convertible senior notes									7,385	7,345
Income (Loss) available to common stockholders plus assumed exercises and conversion									$ 30,639	$ 28,854	$ (53,906)
Earnings per share - basic, Weighted Average Shares
Weighted Average Shares, available to common stockholders	18,781	18,559	19,108	19,090	19,570	18,897	21,276	22,003	19,435	20,948	22,200
Effect of dilutive securities:
Assumed conversion of convertible senior notes									23,369	20,388
Options and warrants									0	0	0
Earnings per share - diluted, Weighted Average Shares
Income (Loss) available to common stockholders plus assumed exercises and conversion, weighted average shares	18,781	42,562	19,108	19,090	44,060	45,152	21,276	22,003	43,321	41,516	22,200
Earnings per share - basic
Net income (loss) available to common stockholders, per-share	$ (0.50)	$ 2.47	$ (0.30)	$ (0.40)	$ 0.14	$ 2.33	$ (0.43)	$ (0.74)	$ 1.20	$ 1.03	$ (2.43)
Earnings per share - diluted
Income (Loss) available to common stockholders plus assumed exercises and conversion, per-share	$ (0.50)	$ 1.12	$ (0.30)	$ (0.40)	$ 0.11	$ 1.03	$ (0.43)	$ (0.74)	$ 0.71	$ 0.70	$ (2.43)
Options and Warrants
Earnings Per Share Disclosure [Line Items]
Effect of dilutive securities, Options, warrants,unvested restricted stock grants and unvested performance stock grants									$ 0	$ 0	$ 0
Restricted Stock
Earnings Per Share Disclosure [Line Items]
Effect of dilutive securities, Options, warrants,unvested restricted stock grants and unvested performance stock grants									$ 0	$ 0	$ 0
Effect of dilutive securities:
Unvested stock grants									170	180
Performance Stock
Earnings Per Share Disclosure [Line Items]
Effect of dilutive securities, Options, warrants,unvested restricted stock grants and unvested performance stock grants									$ 0
Effect of dilutive securities:
Unvested stock grants									347

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Information by Segment and Reconciliation to Reported Amounts (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Segment Reporting Information [Line Items]
Net Sales	$ 163,407	$ 337,027	$ 131,106	$ 114,201	$ 254,016	$ 349,362	$ 124,172	$ 82,510	$ 745,741	$ 810,060	$ 632,925
Operating Income (Loss)	(6,891)	$ 44,628	$ (3,008)	$ (4,199)	7,258	$ 43,812	$ (4,819)	$ (14,924)	30,530	31,327	(44,532)
Depreciation and Amortization Expense									18,860	18,971	21,414
Assets	505,900				561,782				505,900	561,782
Traditional Toys and Electronics
Segment Reporting Information [Line Items]
Net Sales									437,683	408,426	320,565
Operating Income (Loss)									13,588	10,654	(25,286)
Depreciation and Amortization Expense									10,911	11,159	12,475
Assets	326,199				313,380				326,199	313,380
Role Play, Novelty and Seasonal Toys
Segment Reporting Information [Line Items]
Net Sales									308,058	401,634	312,360
Operating Income (Loss)									16,942	20,673	(19,246)
Depreciation and Amortization Expense									7,949	7,812	$ 8,939
Assets	$ 179,701				$ 248,402				$ 179,701	$ 248,402

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Business Segments, Geographic Data, Sales by Product Group and Major Customers - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2015 USD ($) Customer	Dec. 31, 2014 USD ($) Customer
Segment Reporting Information [Line Items]
Percentage of net sales accounted from customer description	No other customer accounted for more than 10% of the Company's total net sales.
Number of major customers | Customer	3	3
United States
Segment Reporting Information [Line Items]
Tools, dyes and molds | $	$ 10.2	$ 8.8
Net Accounts Receivable | Three Largest Customers | Customer Concentration Risk
Segment Reporting Information [Line Items]
Percentage of net accounts receivable accounted for by three largest customers	56.20%	29.80%

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Information by Geographic Area (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived Assets	$ 18,435				$ 11,096				$ 18,435	$ 11,096
Net Sales	163,407	$ 337,027	$ 131,106	$ 114,201	254,016	$ 349,362	$ 124,172	$ 82,510	745,741	810,060	$ 632,925
China
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived Assets	10,172				8,816				10,172	8,816
United States
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived Assets	7,702				1,689				7,702	1,689
Net Sales									542,101	653,497	524,193
Hong Kong
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived Assets	$ 561				$ 591				561	591
Net Sales									1,675	2,746	6,721
Europe
Revenues from External Customers and Long-Lived Assets [Line Items]
Net Sales									117,313	67,027	48,585
Canada
Revenues from External Customers and Long-Lived Assets [Line Items]
Net Sales									32,587	33,040	25,125
Other
Revenues from External Customers and Long-Lived Assets [Line Items]
Net Sales									$ 52,065	$ 53,750	$ 28,301

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Net Sales to Major Customers (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Revenue, Major Customer [Line Items]
Net sales to major customer	$ 331,249	$ 383,960	$ 302,067
Wal-Mart
Revenue, Major Customer [Line Items]
Net sales to major customer	163,333	165,777	135,223
Target
Revenue, Major Customer [Line Items]
Net sales to major customer	96,766	124,257	98,770
Toys 'R' Us
Revenue, Major Customer [Line Items]
Net sales to major customer	$ 71,150	$ 93,926	$ 68,074
Net Sales | Customer Concentration Risk
Revenue, Major Customer [Line Items]
Percentage of Net Sales from major customer	44.40%	47.40%	47.80%
Net Sales | Wal-Mart | Customer Concentration Risk
Revenue, Major Customer [Line Items]
Percentage of Net Sales from major customer	21.90%	20.50%	21.40%
Net Sales | Target | Customer Concentration Risk
Revenue, Major Customer [Line Items]
Percentage of Net Sales from major customer	13.00%	15.30%	15.60%
Net Sales | Toys 'R' Us | Customer Concentration Risk
Revenue, Major Customer [Line Items]
Percentage of Net Sales from major customer	9.50%	11.60%	10.80%

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Joint Ventures - Additional Information (Detail) shares in Millions	1 Months Ended	12 Months Ended
	Sep. 30, 2012 USD ($) shares	Dec. 31, 2015 USD ($) Project	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)
Schedule of Equity Method Investments [Line Items]
Equity in net income/(loss) of joint venture		$ 100,000	$ 300,000	$ (3,100,000)
Investment in DreamPlay LLC		7,000,000	7,000,000
Non-controlling interest's share of losses		$ (84,000)
Pacific Animation Partners Joint Venture
Schedule of Equity Method Investments [Line Items]
Percentage of ownership interest in joint venture		50.00%
Investment in joint venture, percentage share of operating expenses		50.00%
Number of episodes for which production completed | Project		65
Episode show airing beginning date		2012-02
Producer fees and royalty income from joint venture		$ 0	200,000	$ 300,000
DreamPlay Toys
Schedule of Equity Method Investments [Line Items]
Percentage of ownership interest in joint venture	50.00%
Equity in net income/(loss) of joint venture		500,000
Cash paid to Nant Works for joint venture	$ 8,000,000	400,000
Issue of warrants (in shares) | shares	1.5
Issue of warrants	$ 7,000,000
Joint venture toy service agreement expiration date	Oct. 01, 2018
Investment in DreamPlay LLC					$ 7,000,000
Percentage of ownership interest in joint venture					5.00%
Impairment charges		$ 0
China Joint Venture
Schedule of Equity Method Investments [Line Items]
Percentage of ownership interest in joint venture		51.00%
Non-controlling interest's share of losses		$ (84,000)	$ (84,000)

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Balance of Investment in Joint Venture (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Schedule of Equity Method Investments [Line Items]
Equity in cumulative net loss	$ (1,017)	$ (314)	$ 3,148
Pacific Animation Partners Joint Venture
Schedule of Equity Method Investments [Line Items]
Capital contributions		3,856
Equity in cumulative net loss		(3,856)
Investment in joint venture	$ 0	$ 0

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Business Combinations - Additional Information (Detail) $ in Millions	1 Months Ended		12 Months Ended
	Sep. 30, 2012 USD ($) Installment	Jul. 31, 2012 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
Business Acquisition [Line Items]
Other income			$ 5.6	$ 5.9	$ 6.0
Maui, Inc.
Business Acquisition [Line Items]
Business acquisition, cash paid		$ 36.2
Business acquisition maximum additional earn-out payment		$ 18.0
Additional earn-out payment period		3 years
JKID, LTD.
Business Acquisition [Line Items]
Business acquisition, cash paid	$ 1.1
Business acquisition maximum additional earn-out payment	$ 4.4
Additional earn-out payment period	2 years
Business acquisition, deferred cash payment	$ 5.5
Business acquisition, deferred cash payment in installment	$ 1.1
Number of semi-annual payment of deferred cash payment | Installment	5

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Changes in Carrying Amount of Goodwill (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Goodwill [Line Items]
Balance at beginning of the period	$ 44,492	$ 44,876
Adjustments to goodwill for foreign currency translation	(293)	(384)
Goodwill Ending Balance	44,199	44,492
Traditional Toys and Electronics
Goodwill [Line Items]
Balance at beginning of the period	24,881	25,265
Adjustments to goodwill for foreign currency translation	(293)	(384)
Goodwill Ending Balance	24,588	24,881
Role Play, Novelty and Seasonal Toys
Goodwill [Line Items]
Balance at beginning of the period	19,611	19,611
Goodwill Ending Balance	$ 19,611	$ 19,611

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Goodwill - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2015 USD ($)
Goodwill [Line Items]
Goodwill impairment	$ 0

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Intangible Assets and Debt Issuance Costs (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2015
Acquired Intangible Assets by Major Class [Line Items]
Intangible assets, gross carrying amount	$ 190,994	$ 188,704
Intangible assets, accumulated amortization	(131,277)	(137,560)
Intangible assets, net amount	59,717	51,144
Trademarks, net	2,308	2,308
Amortized Intangible Assets, Gross Carrying Amount	173,763	174,963
Amortized Intangible Assets, Accumulated Amortization	(124,859)	(132,778)
Amortized Intangible Assets, Net Amount	$ 48,904	42,185
4.50% Convertible senior notes
Acquired Intangible Assets by Major Class [Line Items]
Deferred Costs, Weighted Useful Lives (Years)	3 years 9 months 7 days
Deferred Costs, Gross Carrying Amount	$ 14,923	11,433
Deferred Costs, Accumulated Amortization	(6,418)	(4,782)
Deferred Costs, Net Amount	$ 8,505	6,651
Licenses
Acquired Intangible Assets by Major Class [Line Items]
Weighted Useful Lives (Years)	4 years 11 months 16 days
Amortized Intangible Assets, Gross Carrying Amount	$ 91,488	91,488
Amortized Intangible Assets, Accumulated Amortization	(85,113)	(86,994)
Amortized Intangible Assets, Net Amount	$ 6,375	4,494
Product Lines
Acquired Intangible Assets by Major Class [Line Items]
Weighted Useful Lives (Years)	5 years 8 months 27 days
Amortized Intangible Assets, Gross Carrying Amount	$ 66,594	67,794
Amortized Intangible Assets, Accumulated Amortization	(27,235)	(32,077)
Amortized Intangible Assets, Net Amount	$ 39,359	35,717
Customer relationships
Acquired Intangible Assets by Major Class [Line Items]
Weighted Useful Lives (Years)	5 years 2 months 16 days
Amortized Intangible Assets, Gross Carrying Amount	$ 9,348	9,348
Amortized Intangible Assets, Accumulated Amortization	(7,831)	(8,391)
Amortized Intangible Assets, Net Amount	$ 1,517	957
Trade Name
Acquired Intangible Assets by Major Class [Line Items]
Weighted Useful Lives (Years)	5 years
Amortized Intangible Assets, Gross Carrying Amount	$ 3,000	3,000
Amortized Intangible Assets, Accumulated Amortization	(1,450)	(2,050)
Amortized Intangible Assets, Net Amount	$ 1,550	950
Non-compete/Employment contracts
Acquired Intangible Assets by Major Class [Line Items]
Weighted Useful Lives (Years)	3 years 10 months 24 days
Amortized Intangible Assets, Gross Carrying Amount	$ 3,333	3,333
Amortized Intangible Assets, Accumulated Amortization	(3,230)	(3,266)
Amortized Intangible Assets, Net Amount	$ 103	$ 67

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Intangible Assets Other Than Goodwill - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Finite-Lived and Indefinite-Lived Intangible Assets [Line Items]
Amortization expense	$ 10.0	$ 10.5	$ 10.6

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Future Amortization Expense (Detail) $ in Thousands	Dec. 31, 2015 USD ($)
Expected Amortization Expense [Line Items]
2016	$ 11,780
2017	10,589
2018	7,667
2019	5,255
2020	4,592
Thereafter	8,953
Intangible Assets And Debt Issuance Cost , Total	$ 48,836

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Concentration of Credit Risk - Additional Information (Detail) - Customer	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Concentration Risk [Line Items]
Number of major customers	3	3
Net Accounts Receivable | Three Largest Customers | Customer Concentration Risk
Concentration Risk [Line Items]
Percentage of net accounts receivable accounted for by three largest customers	56.20%	29.80%

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Accrued Expenses (Detail) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Schedule of Accrued Liabilities [Line Items]
Royalties	$ 21,599	$ 34,378
Sales commissions	1,132	1,914
Bonuses	6,275	6,200
Professional fees	2,535	2,780
Acquisition earn-out		6,831
Salaries and employee benefits	185	149
Interest expense	2,333	2,675
Unearned revenue	1,720	1,379
Molds and tools	2,669	2,093
Reorganization costs	90	1,626
Media expense		5,846
Inventory liabilities	6,754	6,898
Goods in transit	2,736	3,743
Preference claims		1,017
Other	6,053	9,445
Accrued expenses	$ 54,081	$ 86,974

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Components of Rental Property Reorganization Charges (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($)
Schedule of Accrued Liabilities [Line Items]
Accrued Balance	$ 1,626
Accrual	0
Payments	(1,536)
Accrued Balance	90
2013 lease abandonment costs
Schedule of Accrued Liabilities [Line Items]
Accrued Balance	1,258
Accrual	0
Payments	(1,168)
Accrued Balance	90
2009 lease abandonment costs
Schedule of Accrued Liabilities [Line Items]
Accrued Balance	368
Accrual	0
Payments	$ (368)

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Related Party Transactions - Additional Information (Detail) - USD ($) shares in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Related Party Transactions
Related Party Transaction [Line Items]
Legal fees and expenses	$ 3,100,000	$ 2,400,000	$ 3,000,000
Legal fees and reimbursable expense, payable	$ 1,600,000	600,000
Nantworks
Related Party Transaction [Line Items]
Percentage of ownership interest in joint venture	25.20%
Shares underlying out of money warrants	1.5
Preferred return earned	$ 718,767	821,939	188,000
Rent expense including common area maintenance and parking	100,000	1,300,000	$ 800,000
Related party, receivable	600,000	$ 600,000
Renewal fee payable	1,200,000
Renewal fee paid	800,000
Renewal fee payable on or before each of August 1, 2016	200,000
Renewal fee payable in 2017	$ 200,000

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Credit Facility - Additional Information (Detail) - USD ($)	1 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014
Line of Credit Facility [Line Items]
Letters of credit outstanding aggregate amount		$ 23,200,000
GE Loan Agreement
Line of Credit Facility [Line Items]
Line of credit facility maximum borrowing capacity	$ 75,000,000	$ 55,500,000	$ 67,100,000
Line of credit facility, maturity date		Mar. 27, 2019
Amount of credit facility outstanding		$ 0	$ 0
Rate of credit facility		2.25%
GE Loan Agreement | London Interbank Offered Rate (LIBOR)
Line of Credit Facility [Line Items]
Applicable margin spread over base rate	2.25%
GE Loan Agreement | Base Rate
Line of Credit Facility [Line Items]
Applicable margin spread over base rate	1.25%
GE Loan Agreement | Minimum
Line of Credit Facility [Line Items]
Fixed charge coverage ratio		120.00%
Percentage of fee for unused amount of credit facility		0.25%
GE Loan Agreement | Maximum
Line of Credit Facility [Line Items]
Percentage of fee for unused amount of credit facility		0.50%

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Convertible Senior Notes (Detail) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Convertible senior notes	$ 215,000	$ 215,000
4.25% Convertible Senior Notes (due 2018)
Debt Instrument [Line Items]
Convertible senior notes	100,000	100,000
4.875% Convertible Senior Notes (due 2020)
Debt Instrument [Line Items]
Convertible senior notes	$ 115,000	$ 115,000

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Convertible Senior Notes (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Jun. 30, 2014	Jul. 31, 2013
4.25% Convertible Senior Notes (due 2018)
Debt Instrument [Line Items]
Debt instrument, maturity year	2018	2018
Debt instrument, interest rate	4.25%	4.25%		4.25%
4.875% Convertible Senior Notes (due 2020)
Debt Instrument [Line Items]
Debt instrument, maturity year	2020	2020
Debt instrument, interest rate	4.875%	4.875%	4.875%

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Convertible Senior Notes - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended				12 Months Ended
	Nov. 01, 2014	Jan. 31, 2016	Jun. 30, 2014	Jul. 31, 2013	Nov. 30, 2009	Dec. 31, 2015	Dec. 31, 2014	Nov. 01, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Gain on debt extinguishment									$ 84
Debt discount									(2,802)
Payment for repurchase of common stock			$ 24,000			$ 13,193	$ 24,000
Repurchase of common stock under prepaid forward repurchase agreement, shares			3,112,840
Repayments of debt							39,000		61,000
4.50% Convertible senior notes (due 2014)
Debt Instrument [Line Items]
Long term debt, face amount					$ 100,000
Frequency of interest payment						Semi-annually
Debt instrument, maturity date					Nov. 01, 2014
Debt instrument, interest rate					4.50%
Debt discount					$ 13,700
Interest expenses associated with amortization of equity component						$ 0	$ 900		2,000
Debt issuance cost written off amount									600
Repurchase of related equity component									2,800
Debt discount written off amount									$ 2,200
Repayments of debt	$ 39,000
Debt instrument repurchase amount				$ 61,000
4.25% Convertible Senior Notes (due 2018)
Debt Instrument [Line Items]
Long term debt, face amount				$ 100,000
Frequency of interest payment						Semi-annually
Debt instrument, maturity date				Aug. 01, 2018
Debt instrument, interest rate				4.25%		4.25%	4.25%
Gain on debt extinguishment				$ 100
Conversion rate in share per $1000 principal amount of notes				114.3674
Debt instrument, conversion rate				$ 8.74
Net proceeds from debt instrument				$ 96,000
4.875% Convertible Senior Notes (due 2020)
Debt Instrument [Line Items]
Long term debt, face amount			$ 115,000
Frequency of interest payment						Semi-annually
Debt instrument, maturity date			Jun. 01, 2020
Debt instrument, interest rate			4.875%			4.875%	4.875%
Conversion rate in share per $1000 principal amount of notes			103.7613
Debt instrument, conversion rate			$ 9.64
Net proceeds from debt instrument			$ 110,400
Payment for repurchase of common stock			$ 24,000
Repurchase of common stock under prepaid forward repurchase agreement, shares			3,100,000
Repayments of debt								$ 39,000
4.875% Convertible Senior Notes (due 2020) | Subsequent Event
Debt Instrument [Line Items]
Payment for repurchase of common stock		$ 2,000
Repayments of debt		$ 2,000

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Key Component of Convertible Senior Notes (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Convertible senior notes, net	$ 215,000	$ 215,000
4.50% Convertible senior notes (due 2014)
Debt Instrument [Line Items]
Contractual interest expense on the coupon		1,463	$ 3,356
Amortization of debt discount and debt issuance costs recognized as interest expense		1,140	2,030
Amortization of Deferred Charges, Total		2,603	5,386
4.25% Convertible Senior Notes (due 2018)
Debt Instrument [Line Items]
Contractual interest expense	4,250	4,250	1,771
Amortization of debt discount and debt issuance costs recognized as interest expense	836	835	421
Amortization of Deferred Charges, Total	5,086	5,085	$ 2,192
Principal amount of notes	100,000	100,000
Convertible senior notes, net	100,000	100,000
4.875% Convertible Senior Notes (due 2020)
Debt Instrument [Line Items]
Contractual interest expense	5,606	3,135
Amortization of debt discount and debt issuance costs recognized as interest expense	811	473
Amortization of Deferred Charges, Total	6,417	3,608
Principal amount of notes	115,000	115,000
Convertible senior notes, net	$ 115,000	$ 115,000

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Income Taxes - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income Taxes [Line Items]
Provision (benefit) for income taxes	$ 3,423,000	$ 3,715,000	$ 2,611,000
Effective income tax rate	12.90%	14.70%	(5.10%)
Effective income tax rate, exclusive of discrete items	9.50%	13.60%	(5.80%)
Discrete tax benefit (expenses)	$ 900,000
Net deferred tax liabilities	2,293,000	$ 2,622,000
Deferred tax assets, undistributed earnings of foreign subsidiaries	252,000,000
Unrecognized tax positions, recognized	1,800,000		$ 300,000
Valuation allowance	100,900,000	106,800,000
Increase (decrease) in valuation allowance	(5,900,000)
U.S. federal net operating loss carryforwards	$ 76,000,000
U.S. federal net operating loss carryforwards, expiration period	Dec. 31, 2031
Foreign tax credit carryforwards	$ 12,600,000
Foreign tax credit carryforwards, expiration year	2022
Federal research and development tax credit carryforwards	$ 500,000
Federal research and development tax credit carryforwards, expiration year	2029
State research and development tax credit carryforwards	$ 140,000
Interest Expense
Income Taxes [Line Items]
Interest expense relating to UTPs	0	150,000	$ 120,000
State Of California
Income Taxes [Line Items]
U.S. federal net operating loss carryforwards	$ 110,000,000
U.S. federal net operating loss carryforwards, expiration period	Dec. 31, 2031
Reserve for depreciation
Income Taxes [Line Items]
De-recognized UTP	$ 2,100,000	$ 44,000

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Provision (Benefit) for Income Taxes (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income Taxes [Line Items]
Federal		$ (4)	$ (1,862)
State and local	$ 708	287	(390)
Foreign	3,044	3,887	4,894
Total Current	3,752	4,170	2,642
APIC		(84)	(160)
Deferred	(329)	(371)	129
Total	$ 3,423	$ 3,715	$ 2,611

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Components of Deferred Tax Assets/(Liabilities) (Detail) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Current:
Reserve for sales allowances and possible losses	$ 797	$ 1,034
Accrued expenses	1,252	8,231
Prepaid royalties	13,869	16,322
Accrued royalties	4,178	5,029
Inventory	3,495	4,065
State income taxes	(7,231)	(8,206)
Other	487	709
Gross current	16,847	27,184
Valuation allowance	(19,586)	(23,826)
Net current assets		3,358
Net current liabilities	(2,739)
Long Term:
Federal and state net operating loss carry forwards	37,473	29,383
Property and equipment	4,039	4,542
Original issue discount interest	(10,419)	(13,561)
Goodwill and intangibles	36,990	43,269
Share based compensation	2,487	2,309
Other	11,228	11,037
Gross long-term	81,798	76,979
Valuation allowance	(81,352)	(82,959)
Net long-term liabilities		(5,980)
Net long-term assets	446
Total net deferred tax assets/(liabilities)	$ (2,293)	$ (2,622)

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Reconciliation for Significant Differences in Tax at Statutory and Effective Rates (Detail)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Reconciliation of Statutory Federal Tax Rate [Line Items]
Federal income tax expense	35.00%	35.00%	35.00%
State income tax expense, net of federal tax effect	1.00%		6.20%
Effect of differences in U.S. and Foreign statutory rates	(9.40%)	(14.10%)	4.80%
Uncertain tax positions	0.30%		0.40%
Earn out adjustments	(7.40%)
Provision to return	12.20%
Other	1.60%	(0.40%)	4.30%
Foreign deemed dividend	1.70%		(45.30%)
Foreign tax credit	(0.50%)		21.40%
Valuation allowance	(21.60%)	(5.80%)	(31.90%)
Effective income tax rate	12.90%	14.70%	(5.10%)

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Components of Income (Loss) Before Provision (Benefit) for Income Taxes (Detail) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Schedule of Components of Income Before Income Tax Expense (Benefit) [Line Items]
Domestic									$ 11,692	$ 5,358	$ (66,470)
Foreign									14,901	19,866	15,175
Income (loss) before provision for income taxes	$ (9,078)	$ 47,239	$ (4,414)	$ (7,154)	$ 3,978	$ 45,807	$ (7,772)	$ (16,789)	$ 26,593	$ 25,224	$ (51,295)

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Information of UTPs Affecting Effective Tax Rate, if Recognized (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Significant Change in Unrecognized Tax Benefits is Reasonably Possible [Line Items]
Beginning Balance	$ 2.5	$ 2.6	$ 4.8
Current year additions	1.8		0.3
Current year reduction due to lapse of applicable statute of limitations		(0.1)	(2.5)
Current year reduction due to audit settlement	(2.1)
Ending Balance	$ 2.2	$ 2.5	$ 2.6

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Leases - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Leases Disclosure [Line Items]
Operating leases rent expense	$ 11.5	$ 13.0	$ 14.4

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Schedule of Minimum Annual Lease Payments (Detail) $ in Thousands	Dec. 31, 2015 USD ($)
Operating Leased Assets [Line Items]
2016	$ 12,729
2017	12,524
2018	9,248
2019	5,995
2020	3,997
Thereafter	11,892
Operating Leases, Future Minimum Payments Due, Total	$ 56,385

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Common Stock and Preferred Stock - Additional Information (Detail)			1 Months Ended				12 Months Ended
	Jun. 14, 2013 USD ($)	Mar. 15, 2013 USD ($)	Apr. 30, 2015 USD ($) shares	Jan. 31, 2015 USD ($) ExecutiveOfficers Director shares	Jun. 30, 2014 USD ($) $ / shares shares	Jan. 31, 2014 USD ($) ExecutiveOfficers Director shares	Dec. 31, 2015 USD ($) $ / shares shares	Dec. 31, 2014 USD ($) $ / shares shares	Dec. 31, 2013 USD ($) $ / shares	Jun. 30, 2015 USD ($)
Class of Stock [Line Items]
Common stock, shares authorized							100,000,000	100,000,000
Preferred shares, shares authorized							5,000,000	5,000,000
Total number of shares authorized							105,000,000
Common stock, par value | $ / shares							$ 0.001	$ 0.001
Preferred shares, par value | $ / shares							$ 0.001	$ 0.001
Common stock, shares issued							21,153,878	22,682,295
Common stock, shares outstanding							21,153,878	22,682,295
Dividends declared, per share | $ / shares									$ 0.07
Cash dividend paid | $	$ 1,500,000	$ 1,500,000					$ 0	$ 0	$ 3,084,000
Number of executive officers | ExecutiveOfficers				2		2
Number of non-employee directors | Director				5		5
Common stock repurchased, shares					3,112,840
Repurchase of common stock, average price per share | $ / shares					$ 7.71
Common stock repurchased, value | $					$ 24,000,000			$ 24,000,000
Securities
Class of Stock [Line Items]
Common stock repurchased, shares							1,547,361
Common stock repurchased, value | $							$ 13,200,000
Common stock retired and cancelled							1,000,000
Debt instrument repurchase amount | $							$ 0
Minimum | Restricted Stock
Class of Stock [Line Items]
Vesting period							1 year
Maximum | Restricted Stock
Class of Stock [Line Items]
Vesting period							2 years
Maximum | Securities
Class of Stock [Line Items]
Stock repurchase, authorized amount | $										$ 30,000,000
Executive officer
Class of Stock [Line Items]
Restricted stock issued, shares			135,234	525,734		531,993
Restricted stock issued, value | $			$ 900,000	$ 3,600,000		$ 3,600,000
Executive officer | Minimum | Restricted Stock
Class of Stock [Line Items]
Vesting period			1 year	1 year		1 year
Executive officer | Maximum | Restricted Stock
Class of Stock [Line Items]
Vesting period			3 years	3 years		3 years
Non-employee directors
Class of Stock [Line Items]
Restricted stock issued, shares				73,855		78,150
Restricted stock issued, value | $				$ 500,000		$ 500,000
Non-employee directors | Restricted Stock
Class of Stock [Line Items]
Shares of restricted stock, vesting date				2016-01		2015-01

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Commitments - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2015
Minimum
Commitments and Contingencies Disclosure [Line Items]
Royalties percentage of net sales	1.00%
Maximum
Commitments and Contingencies Disclosure [Line Items]
Royalties percentage of net sales	20.00%

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Future Annual Minimum Royalty Guarantees (Detail) $ in Thousands	Dec. 31, 2015 USD ($)
Commitments and Contingencies Disclosure [Line Items]
2016	$ 32,427
2017	28,696
2018	17,659
2019	10
Future minimum royalty payments, total	$ 78,792

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Future Minimum Guaranteed Amount (Detail) $ in Thousands	Dec. 31, 2015 USD ($)
Commitments and Contingencies Disclosure [Line Items]
2016	$ 6,869
2017	5,324
2018	1,315
Accounts payable	$ 13,508

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Share-Based Payments - Additional Information (Detail)	1 Months Ended			12 Months Ended
	Apr. 30, 2015	Jan. 31, 2015	Jan. 31, 2014	Dec. 31, 2015 USD ($) shares	Dec. 31, 2014 USD ($) shares	Dec. 31, 2013 USD ($) shares	Dec. 31, 2012 $ / Warrants shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for future grant				708,123
Awarded				734,823	610,143	996,990
Restricted stock surrendered, in values | $				$ 1,000	$ 2,000	$ 34,000
Restricted stock, unvested				411,409	568,057	721,752	95,315
Forfeited				663,855	544,651	290,125
Unrecognized compensation, non-vested restricted stock awards | $				$ 1,800,000
Unrecognized compensation, non-vested restricted stock awards expected recognized period				1 year 10 months 6 days
Recognition Technology in Connection with Toy Products
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock warrants granted to third party in connection with acquisition							1,500,000
Exercise price of warrants | $ / Warrants							16.28
Warrants exercisable term							5 years
Stock Option And Award Plans
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reserved shares of common stock for future issuance				6,525,000
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period				4 years
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awarded				734,823	610,143	996,990
Shares of restricted stock cancelled				51,633		4,582
Restricted stock surrendered, (in shares)				52,024	51,877	7,540
Restricted stock, unvested				411,409	568,057	721,752
Weighted average grant date fair value | $				$ 2,700,000	$ 3,700,000	$ 5,000,000
Restricted Stock | Non-employee directors
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock grants | $				$ 100,000
Awarded				73,855	78,150	54,227
Restricted Stock | Executive officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awarded					531,993	285,543
Shares of restricted stock issued				660,968
Forfeited				612,221
Restricted Stock | Non-executive employees
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awarded						657,220
Shares of restricted stock issued					12,658
Restricted Stock | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period				1 year
Restricted Stock | Minimum | Executive officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year	1 year	1 year
Restricted Stock | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period				2 years
Restricted stock surrendered, in values | $					$ 100,000	$ 100,000
Restricted Stock | Maximum | Executive officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	3 years	3 years	3 years

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Summary of Restricted Stock Award Activity (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Number of Shares
Outstanding at beginning of period	568,057	721,752	95,315
Awarded	734,823	610,143	996,990
Released	(227,616)	(219,187)	(80,428)
Forfeited	(663,855)	(544,651)	(290,125)
Outstanding at end of period	411,409	568,057	721,752
Weighted Average Fair Value
Outstanding at beginning of period	$ 6.54	$ 6.88	$ 16.75
Awarded	6.81	6.72	8.38
Released	6.60	7.99	16.46
Forfeited	6.77	6.61	12.61
Outstanding at end of period	$ 6.61	$ 6.54	$ 6.88

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Total Share-Based Compensation Expense and Related Tax Benefits Recognized (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock compensation expense	$ 1,562	$ 1,473	$ 1,085
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Tax benefit (deficiency) related to restricted stock compensation	$ 0	$ 0	$ 0

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Stock Option Activity (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Number of Shares
Options outstanding at beginning of period	75,000	127,144	134,644
Canceled	(75,000)	(52,144)	(7,500)
Options outstanding at end of period		75,000	127,144
Weighted Average Exercise Price
Options outstanding at beginning of period	$ 20.69	$ 20.20	$ 19.82
Canceled	$ 20.69	19.50	13.39
Options outstanding at end of year		$ 20.69	$ 20.20

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Employee Benefits Plan - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Schedule of Employee Benefit Plans [Line Items]
Maximum percentage of employee gross pay for defined contribution plan under Section 401(k)	50.00%
Employer matching contribution for defined contribution plan under Section 401(k)	5.00%
Total company matching contributions	$ 2.2	$ 1.9	$ 2.1

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Supplemental Information to Consolidated Statements of Cash Flows - Additional Information (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Cash Flow Supplemental Disclosures [Line Items]
Restricted stock surrendered, in values	$ 1	$ 2	$ 34
Restricted Stock Vested
Cash Flow Supplemental Disclosures [Line Items]
Tax benefit (deficiency) related to restricted stock compensation		$ (100)	$ (200)
employees - including an executive officer
Cash Flow Supplemental Disclosures [Line Items]
Restricted stock surrendered, (in shares)	52,024	51,877	7,540
employees - including an executive officer | Maximum
Cash Flow Supplemental Disclosures [Line Items]
Restricted stock surrendered, in values		$ 100	$ 100

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Quarterly Financial Data (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Quarterly Financial Information [Line Items]
Net Sales	$ 163,407	$ 337,027	$ 131,106	$ 114,201	$ 254,016	$ 349,362	$ 124,172	$ 82,510	$ 745,741	$ 810,060	$ 632,925
Gross profit	49,575	104,329	39,287	35,378	79,697	94,737	37,818	23,555	228,569	235,807	155,779
Income (loss) from operations	(6,891)	44,628	(3,008)	(4,199)	7,258	43,812	(4,819)	(14,924)	30,530	31,327	(44,532)
Income (loss) before provision (benefit) for income taxes	(9,078)	47,239	(4,414)	(7,154)	3,978	45,807	(7,772)	(16,789)	26,593	25,224	(51,295)
Net income (loss)	$ (9,386)	$ 45,864	$ (5,727)	$ (7,581)	$ 2,798	$ 44,069	$ (9,053)	$ (16,305)	$ 23,254	$ 21,509	$ (53,906)
Basic earnings (loss) per share	$ (0.50)	$ 2.47	$ (0.30)	$ (0.40)	$ 0.14	$ 2.33	$ (0.43)	$ (0.74)	$ 1.20	$ 1.03	$ (2.43)
Weighted average shares outstanding	18,781	18,559	19,108	19,090	19,570	18,897	21,276	22,003	19,435	20,948	22,200
Diluted earnings (loss) per share	$ (0.50)	$ 1.12	$ (0.30)	$ (0.40)	$ 0.11	$ 1.03	$ (0.43)	$ (0.74)	$ 0.71	$ 0.70	$ (2.43)
Weighted average shares and equivalents outstanding	18,781	42,562	19,108	19,090	44,060	45,152	21,276	22,003	43,321	41,516	22,200

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Valuation and Qualifying Accounts (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	$ 35,618	$ 43,789	$ 46,860
Charged to Costs and Expenses	43,875	51,810	54,525
Deductions	(51,461)	(59,981)	(57,596)
Balance at End of Period	28,032	35,618	43,789
Uncollectible accounts
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	3,264	2,928	2,536
Charged to Costs and Expenses	(143)	1,545	541
Deductions	(407)	(1,209)	(149)
Balance at End of Period	2,714	3,264	2,928
Reserve for potential product obsolescence
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	7,877	9,487	9,951
Charged to Costs and Expenses	1,511	5,524	16,257
Deductions	(1,337)	(7,134)	(16,721)
Balance at End of Period	8,051	7,877	9,487
Reserve for sales returns and allowances
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	24,477	31,374	34,373
Charged to Costs and Expenses	42,507	44,741	37,727
Deductions	(49,717)	(51,638)	(40,726)
Balance at End of Period	$ 17,267	$ 24,477	$ 31,374